Is Quality Accreditation Effective? Evidence from the Childcare Market

The ineffectiveness of a quality accreditation mechanism can be attributed to the inability of the accreditation status to provide consumers with information they do not already possess. I present a structural model of demand allowing consumers to infer quality from both accreditation status and firm reputation. I then estimate this model to assess the effectiveness and the impact of the national accreditation system for childcare centers on consumer welfare. My results suggest that disregarding the endogeneity of firms’ accreditation choices significantly underestimates the effectiveness of the accreditation system. However, on average consumers do not gain much information beyond what they have inferred from a firm’s reputation. The estimates of structural parameters are then used to quantify the value of this information to consumers. JEL: L15 (Information and Product Quality); L8 (Industry Studies: Services) This Version: July 2009 * Mo Xiao, Department of Economics, University of Arizona, Tucson, AZ 85721. Email: [email protected]. I am deeply indebted to my dissertation committee members V. Joseph Hotz, John Riley, Dan Ackerberg and Kenneth Sokoloff for their consistent inputs. I thank Tasneem Chipty, Ann Witte, and Ellen Kisker for providing data. I also thank Andrew Ching, Hongbin Cai, Harold Demsetz, Paul Devereux, Phillip Leslie, Jean-Laurent Rosenthal, Duncan Thomas, Bill Zame, seminar participants at UCLA, Brown, Iowa State, Southern Methodist, USC, Rochester, and participants of the 2003 North American Econometric Society Summer Meetings for helpful comments. This research was funded by a grant from the National Institute for Child Health and Human Development (R01 HD035382). The author is solely responsible for the contents of the paper.