The Economics of Adoption of Children from Foster Care

By Hansen, Mary Eschelbach; Hansen, Bradley A. | Child Welfare, May/June 2006 | Go to article overview

The Economics of Adoption of Children from Foster Care


Hansen, Mary Eschelbach, Hansen, Bradley A., Child Welfare


Federal initiatives since 1996 have intensified the efforts of states to achieve adoption for children in foster care. For many waiting children, the path to adoption is long. The authors offer an economic analysis of adoption from foster care, with an emphasis on the reasons why achieving the goal of adoption for all waiting children may be so difficult. The authors then estimate the determinants of adoptions from foster care across the states using data for fiscal years 1996 and 1997. Adoption assistance subsidy rates stand out as the most important determinant of adoptions from foster care, followed by use of alternatives (e.g., intercountry adoption). Adoptive matching on the basis of race does not appear to prevent adoptions from foster care in the aggregate, leaving flaws in the matching process, such as a lack of information and difficulty using the Interstate Compact on the Placement of Children (ICPC), as a primary reason why children wait.

President William Clinton's Adoption 2002 and President George W. Bush's unveiling ofwww.AdoptUSKids.org are emblems of the renewed attention of federal policy to the adoption of children from foster care. The 1997 Adoption and Safe Families Act (RL. 105-89) changed the regulations states must follow and the incentives states received when they improved performance in adoptive placements (Spar, 1997). The 2001 Tax Relief Act (P.L. 107-16) changed adoption incentives again by offering a $10,000 unqualified tax credit to families who finalize the adoption of children with special needs after January 1,2003. Changes in public policy concerning adoption should be informed by an understanding of the factors that influence the adoption decision of the family and adoptive placement by social workers, but relatively little research has been done on the factors that influence adoptions from foster care across the states.

In this article, the authors present an economic analysis of the adoption of children from foster care. Using the theory of consumer behavior, the authors estimate a statistical model of the determinants of adoptions from foster care across the United States using data for fiscal years 1996 and 1997, finding that the size of the adoption assistance payment is the only policy variable that is clearly and positively correlated with success in achieving adoption for waiting children. Evidence shows that adoptions from foster care and intercountry and private adoptions are negatively correlated, suggesting that policy that reduces the cost of alternatives to adoption from foster care may prevent adoptions of some waiting children. The authors find no evidence of a negative effect of adoptive matching on the basis of race in the cross-section. More spending on child welfare services does not result in more adoptions of waiting children, which leads to the conclusion that flaws in the match process itself, such as incomplete information about children and families, and deficiencies in the Interstate Compact on the Placement of Children (ICPC) likely explain why many waiting children are not placed with adoptive families.

An Economic Model of Adoption from Foster Care

Although economic analyses of adoption are rare, they are not entirely absent. Perhaps most provocatively, Landes and Posner (1978) developed an analysis of the market for infant adoption, with an eye toward recommending policies that reduce the shortage of infants available for adoption. They view infant adoption as a market in which parental rights are exchanged. They also conclude that the cost of adoption should be allowed to rise until enough infants are offered to meet the desires of approved families willing to pay a high price. Critics such as Zelizer (1981) and Freundlich (2000) view this argument as "baby-selling." Landes and Posner's argument is inappropriate for the study of the adoption of waiting children for three reasons.

First, adoption is not a market for a child, or even a market where parental rights are sold. …

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