Determinants of Efficiency in Child-Care Provision

We analyze the efficiency of the municipal provision of child care and identify the main determinants of inefficiency. A unique data set on child-care expenditures and school readiness in the eastern German state of Saxony allows us to control for possible differences in quality across municipalities. First, we measure the efficiency using data envelopment analysis. We find substantial efficiency differences; the median municipality is up to 28% inefficient. Second, we identify the determinants of inefficiency in a bootstrapped truncated regression. Explanatory variables, such as an uncompensated mayor or a larger share of over-65-year-olds, significantly increase inefficiency.