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Adoption Subsidy, Foster Care Payment, and Foster Care Adoption: A Two-stage Least Squares Approach

By Chun Sun Bak

This paper examines the effect of the change in the magnitude of monthly governmental adoption subsidy on the adoption rate for foster children in foster family structures. In order to account for omitted variable bias attached to the amount of subsidy that a child receives, I construct an instrumental variable that takes advantage of the fact that each state has different policies on: (1) the base age from which a child is eligible for special needs; and (2) the amount of increased adoption subsidy that a child receives, on average, if he or she is eligible for special needs adoption. Using the data from the Adoption and Foster Care Analysis and Reporting System (AFCARS) during the years 2001 to 2012, I find that a dollar increase in the amount of adoption subsidy, holding the amount of foster care payment constant, is expected to increase a foster child’s probability of adoption by 0.255%. Although the positive sign of the coefficient is intuitive, and although it is statistically significant at all levels, its magnitude is unrealistically high, suggesting that there may be a problem in the instrument itself or in the accuracy and selection of the data.

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Advisor: Alison Hagy, Allan Collard-Wexler

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