Preliminary and incomplete. Please do not cite without permission. Do Adoption Subsidies Help At-Risk Children?

Over half a million children in the United States are currently in foster care, many of whom are at risk for long-lasting emotional and health problems. Because research suggests that adoption may be one of the most promising options for the placement of these at-risk children, various policies have been introduced at all levels of government to encourage adoption. In 1980, Congress passed the Adoption Assistance and Child Welfare Act, which provided federal funds for monthly adoption subsidies designed to promote adoptions of special-needs children and children in foster care. Using data from the Adoption and Foster Care Reporting and Analysis Systems for 2000-2006, I consider the effects of adoption subsidies on children’s average time to adoption and the characteristics of adoptive families. To address issues of subsidy endogeneity, I employ an instrumental variables strategy that is based on state variation in the age at which children are eligible for federal subsidy funds. I find that subsidy receipt and amount are associated with shorter times to adoption, and increase the probability that a child is adopted by a relative such as a grandmother