Economies of scale and scope and the structure of costs in Australian early childhood services

A unique data set on the costs and characteristics of early childhood education and care services in Australia provides new insights into the structure and variation of the costs of producing early childhood services.  We estimate a generalized Leontief specification of costs in long day care centres and kindergartens in two urban, one regional and one remote area in two states. The paper provides estimates of the economies of scale and economies of scope in early childhood services, as well as estimates of the incremental cost of improvements in quality.  Using other techniques, this paper analyzes the key dimensions of cost variation, and pinpoints the sources of economies of scale.