Investigating differences in costs due to institutional differentiation is
of central importance, since most public sectors struggle with limited reso
urces combined with high demands. Similar public services produced in diffe
rent institutional set-ups constitute excellent units of observation, since
the production costs can be directly compared. An example of such services
is found in Denmark, where the municipalities provide two types of public
childcare arrangements. All Danish municipalities, to varying degrees, offe
r the cheaper type, namely day-care homes. It is, however, remarkable that
day-care centers and day care in private homes coexist in the same municipa
lity with a cost difference of about 40 percent, Using the framework of rat
ional institutionalism, this article claims that the institutional set-ups
in the two kinds of childcare result in different employee strategies, whic
h, together with varying sector strength, lead to widely different costs. T
he case is established by an analysis of interviews with employees, politic
ians and users of childcare services, combined with statistical evidence fr
om the Danish municipalities.