Supply and quality choices in private child care markets: Evidence from São Paulo

Many developing countries have adopted the market approach for expanding the supply of child care, but little is known about the economic behavior of independent providers. Drawing on uniquely rich census data on child care providers from São Paulo, we document three main facts: (1) the stock of private suppliers is considerably larger in high-income city districts; (2) the quality of private provision – as measured by teachers' schooling, group size and equipment – is highly heterogeneous across space and increases systematically with local household income; and (3) a considerable share of centers operates below recommended (but not regulated) quality standards, especially in low-income districts. These findings are consistent with a model of endogenous entry and quality choices by heterogeneous providers. Market-driven heterogeneity in the quality of provision across space is an important consideration for the design of regulations in child care markets.