Economic Incentives and Foster Child Adoption

Every year, a large number of children in the United States enter the foster care system. Many of them are eventually reunited with their biological parents or quickly adopted. A significant number, however, face long-term foster care, and some of these children are eventually adopted by their foster parents. The decision by foster parents to adopt their foster child carries significant economic consequences, including forfeiting foster care payments while also assuming responsibility for medical, legal, and educational expenses, to name a few. Since 1980, U.S. states have begun to offer adoption subsidies to offset some of these expenses, significantly lowering the cost of adopting a child who is in the foster care system. This article presents empirical evidence of the role that these economic incentives play in foster parents’ decision of when, or if, to adopt their foster child. We find that adoption subsidies increase adoptions through two distinct price mechanisms: by lowering the absolute cost of adoption, and by lowering the relative cost of adoption versus long-term foster care.