Essays in the Economics of Child Care

Anna Claire Flowers

Advisor: Peter J Boettke, PhD, Department of Economics

Committee Members: Tyler Cowen, Christopher Coyne, Rosolino Candela

Buchanan Hall, #D100
April 01, 2026, 03:30 PM to 05:30 PM

Abstract:

This dissertation explores the underlying causes of dysfunction in the child care market. Child care is often described as a market failure, suggesting the service will be undersupplied if governed only by market dynamics. But in the United States, the status quo is not a true free market for child care. The sector involves a high level of government funding and regulatory oversight, resulting in entanglement between politicians, bureaucrats, and entrepreneurs. Each chapter contributes to the goal of identifying the true sources of "failure" hindering market coordination between families and child care providers.

Chapter 1 revisits the economic theory that motivates government investment in child care. Neoclassical models of human capital accumulation have been used to project lucrative social returns from public child care programs. In practice, these programs consistently underperform compared to projections, with weighty implications for the children enrolled and the taxpayers who fund them. The Austrian theory of human capital is presented as an alternative theoretical basis for child care policy because it accounts for differences in individuals’ skills, plans, and purposes, as well as the complementarity between social capital and human capital.

Chapter 2 analyzes the dynamics of regulatory intervention in the private child care market and surveys the secondary literature to understand how regulations affect entrepreneurial activity. Though state regulations on child care aim to improve safety and quality, their effectiveness is difficult to measure. What is clear is that these regulations have significant unintended consequences; they create barriers to entry, disrupt channels of information between consumers and providers, and generate profit opportunities outside the regulated sector, all of which undermine the goals of child care regulations and discourage entrepreneurship.

Chapter 3 is a case study demonstrating the cooperative strengths of households and their ability to act as "shock absorbers" when formal institutions are weakened. During the COVID-19 pandemic, households engaged in new patterns of production and consumption, including the reallocation of time and resources to absorb child care and education activities previously provided outside of the home. The solutions that emerged during the pandemic speak to the epistemic advantages of local institutions and provide evidence supporting polycentric governance in child care and education.