Adoption Subsidies and Placement Outcomes for Children in Foster Care

Over 400,000 children in the United States are currently in foster care, many of whom are at risk for long-lasting emotional and health problems. Research suggests that adoption may be one of the more promising options for the placement of these children. The Adoption Assistance and Child Welfare Act of 1980, which provided federal funds for monthly adoption subsidies, was designed to promote adoptions of special-needs children and children in foster care. Using data from the Adoption and Foster Care Analysis and Reporting Systems for 20002006, I consider the effects of these adoption subsidies on the number of adoptions and on time spent in foster care. Because subsidies may be determined endogenously, I employ an identification strategy that exploits state variation in the age at which children are eligible for federal subsidy funds. I find that the number of adoptions increases when children become subsidy eligible, and that most of the increase is from adoptions by foster parents. Conditional on adoption, subsidy eligibility increases the hazard of discharge from foster care. The fact that adoption subsidies are cheaper than the cost of keeping a child in foster care means that removing foster parents’ disincentives for adoption could generate substantial cost savings.