Efficiently organising the allocation of daycare places

In May 2017, around 450 parents queued up to sign up for one of the 45 crèche and 120 kindergarten places in a new daycare centre in Leipzig. At times, the police had to intervene to prevent the crowd of people from blocking the traffic. The situation in Leipzig made the extent of a problem directly visible, which otherwise tends to take place in the background. Despite the legal entitlement, parents have great problems finding a suitable place to look after their child. They often have to apply to a large number of daycare centres immediately after birth.

For many families, being able to take the child to a daycare centre is an important issue and is usually directly connected with the parents’ return to work. Since the return to work requires some preparation and must be coordinated with the employer, parents need planning security concerning the daycare centre accommodation of their child. Currently, parents suffer from a lengthy application process and planning uncertainty. A suitable allocation procedure should, therefore, allocate the childcare places at an early stage so that parents can consider in their planning whether, from when and where their child can be looked after. Besides, the allocation procedure should take the parents’ wishes into account to make the best possible use of the available childcare places. The benefit a childcare place brings to a family can depend on several factors. These include the childcare concept, the distance to the home or even to the workplace of one parent. To ensure that better-informed parents cannot gain an advantage at the expense of other parents, it must be always best for parents to state their wishes regarding daycare facilities truthfully. Local authorities also benefit from truthful information, as this plays a crucial role in long-term capacity planning.

Current allocation practices with little coordination involve considerable administrative work not only for parents but also for daycare centres. On the part of the daycare centres, the lengthy application process ties up staff that would otherwise be available for better childcare. A centrally coordinated procedure can significantly reduce this workload without influencing the freedom of the funding agencies in designing the award criteria. Several studies also show that it is important for the long-term success of an award procedure that parents and daycare centres cannot improve their situation by circumventing the centrally coordinated award procedure. This characteristic is known as stability.

The challenge is to develop a suitable procedure that takes the wishes of parents and daycare centres into account as far as possible and provides planning security. Existing procedures that have already been successfully applied in the education sector can be used as a basis for this, taking into account the special features of the allocation of daycare places.

How can a mechanism be designed to benefit parents and daycare centres?
What needs to be considered?

Stability: Parents and daycare centres benefit from their participation in the allocation procedure.
An allocation procedure is described as stable if neither parents nor daycare centres can improve their situation by making arrangements outside the allocation procedure. This also implies that there are no parents who can find a place at a daycare centre that was higher on their ranking list than the daycare centre at which they were allocated a place. However, many of the allocation procedures currently in use do not lead to a stable allocation and thus provoke dissatisfaction on the part of parents.

Strategic security: No strategic considerations on the part of parents is necessary.
An allocation procedure is described as strategically secure if parents do not have to worry about strategic considerations. On the one hand, this means that it must be optimal for parents to state their wishes regarding the daycare centres truthfully. On the other hand, it requires that it is optimal for parents to accept the first childcare place offer and not wait for another offer. In current practice, it often makes sense for parents to give a distorted indication of their true wishes: On their wish list they then only list facilities where they have a good chance of getting a place. It can also be worthwhile to speculate that more attractive offers will follow. This endangers equal opportunities, as better-informed parents can improve their position by strategic behaviour at the expense of others.

Fugger, Nicolas, Thilo Klein und Tobias Riehm (2017), Dezentrale Kitaplatzvergabe ohne Warteschlange: Ein Leitfaden, ZEW policy brief Nr. 17-04, Mannheim. http://www.zew.de/PU79425

Also the book “Wer kriegt was und warum” by nobel laureate Al Roth is good approach to market design.

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Prof. Dr Nicolas Fugger is a researcher in ZEW’s Research Group “Market Design” and a member of the Research Unit “Design and Behavior” at the German Research Foundation (DFG). He studied economics at the universities of Bonn and Cologne. He completed his doctoral degree in economics at the University of Cologne, under the supervision of Achim Wambach. During his doctorate, Nicolas Fugger spent a period as a guest researcher at Pennsylvania State University.

Nicolas Fugger’s research interests lie in the area of market design. His research particularly focuses on applied auction theory and procurement design. One of his studies was published in the scientific journal “Management Science”.

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Photo: (c) ZEW

Tobias Riehm earned a BSc degree in mathematics and a MSc degree in economics at the University of Mannheim with a special focus on game theory and auction theory. After completing his Master’s studies, he worked as an economic consultant for TWS Partners.

In October 2016, Tobias Riehm joined the Research Group “Market Design” at the Centre for European Economic Research (ZEW). His research particularly focuses on applied auction theory and procurement design.

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