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Kindergarten economics
submited on 08.02.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 08.02.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The new electronic system for enlisting children in kindergartens in Sofia, whose meaning was to help parents and introduce relatively objective and transparent principle for children enlistments, failed at its launch. This induced broad public discussion and raised again the main problem – the deficit of places in kindergartens. Due to the nature of the problem it is more than clear that its solution cannot be found with the introduction of (however convenient and transparent) electronic lottery. The raising of some new municipal kindergartens could temporarily ease the situation, but in the long term, does not provide a decision as well.
From economic perspective justifications for state (municipal) interference on the market of educational services are usually grouped into two categories – presence of market imperfections and necessity for redistribution. The most frequently used argument favoring such intervention is that investments in the early development of children have considerable and long-term consequences for their further life realization and development, and therefore could bring benefits to the whole society. Since these benefits are not only to a particular child (and its parents), the state must intervene, to cover the lack of or the unwillingness to invest from parents’ perspective. From the redistribution argument standpoint the state interference is justified with providing “equal access”, i.e. to guarantee that the access to educational services (in this particular case kindergartens) is not related to the parents’ income. In the same time it is supposed that in order to be efficient, such state interference must generate more benefits, than costs. After all, costs represent a burden to society – via taxes.
The problem with the insufficient number of places in kindergartens is not that demographic and/or infrastructural. It is to a large extent induced namely by this service’s regulation model. In the moment the scheme for public subsidizing of kindergartens creates distorting stimuli both for demand and supply. The market is segmented in the two extremes – expensive private kindergartens and very cheap state/municipal kindergartens. In the same time there is no objective mechanism for measuring the quality of the service provided. Due to insufficiently qualitative information, which to predetermine the choice of kindergarten, main driver of this choice is still price. In this situation the allocation of main demand toward the cheaper segment seems natural, even from the side of parents with higher income. In the current system with regard to high capital expenditures, which private kindergartens have, even the easing the formal entry barriers and the emergence of more market participants would not lead to such price drop for them to become competitive relative to subsidized prices of state/municipal kindergartens.
The reformation of the current model needs to answer two questions. First, how much more effective is the public subsidy to be allocated directly at providing the particular service or to be given to parents in the form of transfer. Second, if however the subsidy is tied with providing the particular service (kindergarten), should the state/municipality aim at providing directly and predominantly this service or it is more appropriate for a mechanism to be invented for reduction of costs of using the services of private kindergartens?
One of the possible decisions is the providing of vouchers to parents, with which they could pay for using the service of kindergarten at their choice (state or private). This would mean subsidizing portion of the price of private kindergartens, i.e. they would become relatively more competitive and would accumulate part of the demand. This would, in turn, stimulate private investments in new kindergartens. It is possible for such a scheme to also stimulate investments in kindergartens from the side of bigger employers – such practice is known in many countries and it has its own advantages, both to employers and parents. After all justice will be reestablished to parents as well, who due to insufficient number of places in state/municipal kindergartens are made to enlist their children in private kindergartens – in the moment they bear double expense, once paying via taxes for subsidizing public kindergartens, which they do not use, and second paying high fees for the private kindergarten.
From economic perspective justifications for state (municipal) interference on the market of educational services are usually grouped into two categories – presence of market imperfections and necessity for redistribution. The most frequently used argument favoring such intervention is that investments in the early development of children have considerable and long-term consequences for their further life realization and development, and therefore could bring benefits to the whole society. Since these benefits are not only to a particular child (and its parents), the state must intervene, to cover the lack of or the unwillingness to invest from parents’ perspective. From the redistribution argument standpoint the state interference is justified with providing “equal access”, i.e. to guarantee that the access to educational services (in this particular case kindergartens) is not related to the parents’ income. In the same time it is supposed that in order to be efficient, such state interference must generate more benefits, than costs. After all, costs represent a burden to society – via taxes.
The problem with the insufficient number of places in kindergartens is not that demographic and/or infrastructural. It is to a large extent induced namely by this service’s regulation model. In the moment the scheme for public subsidizing of kindergartens creates distorting stimuli both for demand and supply. The market is segmented in the two extremes – expensive private kindergartens and very cheap state/municipal kindergartens. In the same time there is no objective mechanism for measuring the quality of the service provided. Due to insufficiently qualitative information, which to predetermine the choice of kindergarten, main driver of this choice is still price. In this situation the allocation of main demand toward the cheaper segment seems natural, even from the side of parents with higher income. In the current system with regard to high capital expenditures, which private kindergartens have, even the easing the formal entry barriers and the emergence of more market participants would not lead to such price drop for them to become competitive relative to subsidized prices of state/municipal kindergartens.
The reformation of the current model needs to answer two questions. First, how much more effective is the public subsidy to be allocated directly at providing the particular service or to be given to parents in the form of transfer. Second, if however the subsidy is tied with providing the particular service (kindergarten), should the state/municipality aim at providing directly and predominantly this service or it is more appropriate for a mechanism to be invented for reduction of costs of using the services of private kindergartens?
One of the possible decisions is the providing of vouchers to parents, with which they could pay for using the service of kindergarten at their choice (state or private). This would mean subsidizing portion of the price of private kindergartens, i.e. they would become relatively more competitive and would accumulate part of the demand. This would, in turn, stimulate private investments in new kindergartens. It is possible for such a scheme to also stimulate investments in kindergartens from the side of bigger employers – such practice is known in many countries and it has its own advantages, both to employers and parents. After all justice will be reestablished to parents as well, who due to insufficient number of places in state/municipal kindergartens are made to enlist their children in private kindergartens – in the moment they bear double expense, once paying via taxes for subsidizing public kindergartens, which they do not use, and second paying high fees for the private kindergarten.
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