The economic measurement and determinants of diversity

This paper has a 2-fold objective: (1) To introduce a measure that would be of general applicability in measuring diversity in different institutions. (2) To identify the determinants of diversity in child-care centers and, in particular, to examine whether the for-profit sector is less diverse than the not-for-profit sector in the child-care industry as the statistics suggest. Using our measure, we isolate factors that significantly influence diversity by using an economic model that makes diversity a decision variable of a firm. Two measures of diversity are suggested: absolute diversity and relative diversity (diversity relative to the surrounding community). To select a suitable index, the Herfindahl measure of concentration is considered relative to several suitable ecological indices measuring species diversity, and found to be virtually identical to such indices. Thus the H-index is used in both absolute and relative measures. Empirical estimation of both absolute and relative diversity equations use probability models and isolate factors that significantly influence both absolute diversity of child-care centers as well as their diversity relative to their respective counties. The data used is the recently released Profile of Child-Care Settings collected by the Mathematica Policy Research.