Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 134
child care consumers only slightly better off than in the absence of vouchers (as with rent
subsidies in the low-income housing sector). There is mixed experience with the effects
of the introduction of a new government subsidy on the cost of child care. For instance,
there have been reports of increased prices (and price discrimination) in the provision of
child care after government subsidies came into effect in Connecticut and Alabama. 89 In a
conflicting report, the Council of Economic Advisors states that “the available evidence
indicates that the supply of care will rise to meet an increase in demand for care without
much of a change in the current price…. As a result, in the absence of other changes, the
benefits of a subsidy accrue to the consumer.” 90 Supporting this second assessment is
Philip Robins’ summary of the available empirical evidence on the price elasticity of
supply of child care. Robins states that, “There is some evidence that the supply of child
care services can increase by the amount of the increased demand without a
corresponding increase in the cost of care.” 91 Aside from the anecdotal evidence of
program directors in Connecticut and Alabama, it appears that the supply of child care is
relatively price elastic. From an a priori theoretical perspective, it is not evident that
vouchers would increase the market costs of child care by a significant amount given the
low barriers to entry for starting up a child care centre. In fact, from a theoretical
perspective we can expect that prices, if they spike at all due to voucher-subsidised
demand, will quickly adjust downward to reflect the costs of providing child care
services. 92
Finally, a fixed-value voucher for accredited child care centres meeting appropriate
early childhood education criteria would be the presumptive norm. However, as we will
argue in the case of primary and secondary education, we may need to be sensitive to the
special needs of certain children. Children with disabilities and children from
disadvantaged backgrounds may require more intensive and expensive care than their
relatively advantaged peers. To avoid the negative consequences of cream-skimming in
terms of access for needier individuals, these children may require calibrated vouchers to
ensure that they have access to care. However, calibration may unduly increase
administrative costs and system complexity, and mandatory pooling may be a feasible
alternative strategy in this regard. By setting the value of the child care voucher at the
cost of providing a quality developmental program of child care to an average child and
mandating acceptance of children (or random selections from waiting lists), we could
avoid at least some of these cream-skimming problems. Apart from any cream-skimming
or price effects, the basic ends of equitable provision are implicated in fixing voucher
values. Many relatively poor families might be able to acquire child care, but quality
child care could be an entirely different matter. 93 The importance of quality care in
capturing positive externalities, and the dangers of negative externalities induced by poor
care, cannot be overemphasized.
Cream-skimming is likely to prove problematic in the absence of calibrated vouchers,
mandatory pooling or, a third option, extra billing. Extra billing allows the price system
to operate as a signal and reward for superior quality, but is likely to compromise equity
goals—hence once again the tension between efficiency and equity. Indeed, some studies
suggest that the price-signaling function of extra billing may have the perverse effect of
discouraging those who are in genuine need of services such as health care (and perhaps
child care) from acquiring it. 94 Our preference would be to disallow extra billing by
accredited child care facilities. In this way the voice of the politically active would be co-