HOW MISALIGNED INCENTIVES HINDER FOSTER CARE ADOPTION.

• Author: Pesavento, Isabella M.

Adoption, particularly adoption out of foster care, has not been well studied within the field of economics. Researchers may avoid this topic because the adoption market greatly deviates from a typical market, and the system and data collection are highly fragmented, with relatively little federal coordination. Rubin et al. (2007) and Thomberry et al. (1999) show that instability in foster care placements produces negative welfare outcomes, and Hansen (2006), Barth et al. (2006), and Zill (2011) demonstrate that adoption out of foster care is socially and financially beneficial. Yet, children waiting to be adopted out of foster care are in excess supply, which has been exacerbated in recent years. I hypothesize that this is, in part, due to misaligned incentives of government officials mid the contracted foster care agencies. I show that earnings are prioritized over ensuring permanent child placement, which hinders the potential for adoption, and government oversight fails to correct such iniquities because of career interests.

Landes and Posner (1978) are the first to reference adoption agencies' misaligned incentives, though only briefly. Gronbjerg, Chen, and Stagner (1995) and Zullo (2002, 2008a, 2008b) discuss private agencies' use of leverage to win contracts and the prioritization of earnings over permanency outcomes. This article provides an updated evaluation of the role of incentives, and, drawing on references to rent-seeking behavior and public choice theory, discusses how the interplay between contracted agencies and corresponding government officials' incentives hinders adoption out of foster care. First, I briefly characterize the market setting. Next, I analyze each party's incentives, and, finally, I conclude with a discussion of limitations and policy implications.

Characterizing the Market

While adoption is not frequently characterized in the context of a market, in its most basic form, adoption constitutes a transaction, with the "good"--the child--being transferred from the "supplier"--the foster care agency--to the "demander"--the parents. Government is a strong intermediary to help ensure the protection of child welfare (Moriguchi 2012).

The Supply Side

Children are placed in the foster care system either voluntarily, when parents who are unable to care for their child surrender their parental rights, or involuntarily, by court order in the case of abuse or neglect. For this reason, the children in foster care come disproportionately from troubled families. Although the total number of people under the age of 19 has not changed significantly in the last five years, the number of children in the foster care system has increased (Miller 2020). Neglect is the most common reason for the child's removal (62 percent), but the opioid epidemic has become an increasingly important factor. Drug abuse accounts for 36 percent of the removals (USCB 2019a), though it is higher in some states, including Ohio, where it is estimated to be 50 percent (Reynolds 2017). If a child remains in foster care for 15 of the most recent 22 months, or if the state deems the parents unfit for guardianship (Children's Bureau 2017), then the agency no longer aims to reunify the child with previous guardians; instead, parental rights are permanently terminated and the child becomes classified as "waiting to be adopted" (Bernal et al. 2007). The children wall wait, on average, four years for adoption (USCB 2019a).

Currently, over 125,000 children in foster care await adoption (USCB 2019a). This "excess supply" has increased 25 percent between 2012 and 2018 (see Table 1), and for the past decade only about 50 percent of the number of children waiting for adoption actually do get adopted each year (USCB 20.19b). Legislation has tried to promote reinstatement of birth parents' rights as a way to address this glut, but a steady increase in legal orphans aging out of the system has persisted (Taylor Adams 2014).

The Demand Side

Parents who adopt out of foster care are frequently characterized as having "a big heart and limited resources" (Bernal et al. 2007). Among these parents, 86 percent were found to be motivated by altruism (i.e., to provide a permanent home for a child) and 39 percent by infertility (multiple answers allowed in the survey). Parents often select foster care over other adoption venues because it is less expensive; concordantly, foster care adoptive parents typically come from lower income backgrounds (Bernal et al. 2007; Bethmann and Kvasnicka 2012).

Government Intermediary

Each state runs its own foster care system independently, though many rely significantly on federal funding through block grants, particularly Title IV-E of the Social Security Act (Taylor Adams 2014). Additionally, state governments have increasingly turned to private, often nonprofit organizations to be able to provide the full array of services needed, and thus the state-governmental role is primarily to set policy and provide oversight of private agencies (Krauskopf and Chen 2013). The contracts with private agencies vary widely, though they frequently stipulate some sort of fixed amount of reimbursement per day or month per child in care (USDHHS 2008). Most states give priority to relatives and current foster parents who are looking to adopt (Ledesma n.d.), because states increasingly view foster care as a steppingstone to adoption (Adoption Exchange Association n.d.).

Value of Adoption Out of Foster Care

It is well documented that adoption is an extremely valuable outcome for children in foster care. Placement instability among foster care homes has been shown to have a significant negative effect on a child's well-being and future success (Rubin et al. 2007; Thomberry et al. 1999). Further, there is mounting evidence that quality parenting is extremely important for success at each stage of life (Reeves and Howard 2013; Kalil 2014), and that parenting need not be provided by a biological parent to achieve the same outcomes (Lamb 2012). Finally, Hansen (2006), Barth et al. (2006), and Zill (2011) have shown that adoption from foster care produces better future welfare and financial outcomes for both the child and society; compared to children who remain in foster care, children who are adopted out achieve better outcomes with regard to education, employment, criminal and disciplinary records, and social skills, among other categories. Adoption provides the government a net savings of $143,000 per child, and each dollar spent on the adoption yields $2.45 to $3.26 in benefits to society (Hansen 2006).

Evaluating Incentives

Given that the choice to adopt a foster child ultimately reduces the government's fiscal burden and improves child and community outcomes, Hansen (2006) regards foster care adoption as a "positive externality." Accordingly, it seems logical that parties involved in the market should promote this transaction. It is in the child's best interest to be placed in a "foster-to-adopt" home as early as possible during their time in the system (Ledesma n.d.). Further, given that foster care parents themselves comprise 78 percent of nonrelative foster care child adoptions (USCB 2019a), placing a child in a safe and caring foster care family is of the utmost importance to promote ultimate adoption. However, it is clear that the current system does not optimally support adoption, as only half the number of children awaiting adoption are actually adopted (USCB 2019b) and children are increasingly aging out of the sys tem (Taylor Adams 2014).

Contracted Agencies: Earnings Focused

Many agencies' incentives conflict with child welfare and placement permanency goals. Zullo (2008a) suggests that privately contracted foster care agencies make decisions based on financial interests rather than child welfare. These agencies, whether for-profit or nonprofit, are typically paid per child in their care (USDHHS 2008). Therefore, each foster parent represents potential revenue (Zullo 2002) and many agencies provide bonuses to incentivize their workers to bring in more parents (CFUSS 2017). This means there is little incentive to reject inappropriate foster families, investigate concerns, or do anything that might cause the child to leave their program (Zullo 2002; Blackstone and Hakim 2003). In fact, on the contrary, Hatcher (2019) cites contract documents between the state and private foster care agencies that illustrate leadership officials sorting children not based on their needs but rather on how much revenue they can generate. As Zullo states, "What happens is the lives of these children become commodities" (Joseph 2015). As a result, private providers do not spend adequate time and resources on efforts to achieve permanent placement for children (Zullo 2008b).

In 2014, the Mentor Network was a leading provider of human and foster care services, operating in 36 states (CFUSS 2017). In 2015, BuzzFeed News and Mother Jones released a series of reports that suggested that Mentor placed children with neglectful and physically/sexually abusive foster care families as away to boost profits. Former Mentor staffers stated, "The success of the program is defined by how many heads are in bed at midnight" and, "The bottom line is a dollar, not a child's well-being" (Joseph 2015). Another former employee admitted, "I became a machine that cared about profits. I didn't care about lads" (Roston and Singer-Vine 2015). Mentor, like half of surveyed agencies, receives almost 100 percent of its revenue from the government (CFUSS 2017: 7), yet it maintains profit...