The Economics of Adoption [i]

Many people are outraged by discussions in which human desires and actions are viewed unemotionally as the interplay of such forces as desires to have or desires to exchange. Economics cannot directly address the morality of such controversial issues as capital punishment, euthanasia, or abortion. However, economic analysis can help us evaluate the costs, benefits, and consequences of alternative policies after society determines whether to permit certain behavior, or to raise barriers to that behavior.

The right to be a parent – to raise a child, and to watch that child grow and develop – is a desire deeply imbedded in most of us. The following analysis examines adoption of children as an economic good. My intent is to show that the cold light of economic reasoning may lead to more humane policies than those based on psychological “gut instincts” or moralistic preachings.

The Current System of Adoption

Whether to allow adoption is a settled issue. Adoption matches children who have been orphaned, abandoned, or relinquished by their birth parents, with adults who view parenting as a way to add meaning to their lives. The needs of adoptable children and the wants of potential adoptive parents are reflected in supplies and demands, regardless of the allocative mechanisms by which adoptive families are matched. Thus, economic analysis may offer valuable insights into alternative mechanisms for adoption.

Laws governing adoption were fairly lax during the Depression and the post-World War II baby boom, when orphans and foundlings outnumbered the families seeking to adopt. In recent years, however, the number of adoptable children has fallen because of widespread birth control, legalized abortion, and a reduced stigma on unwed mothers who keep their children. Demand, however, has grown rapidly over this period, in part because more people now wait until they are a bit older before they marry, and the incidence of sterility has risen. The result is a highly-publicized shortage of adoptable children. As is the case with most lasting shortages, this shortage is a predictable consequence of government policy.

The Shortage of Adoptable Children

Supply and demand in the absence of government controls provides a starting point to examine any government policy. Figure 1 shows the private supply and demand for adoptable children.

Some children are available for adoption without compensation to the relinquishing parents; the quantity of these children is Q₀ in Figure 1. The supply curve is positively sloped because, as the “price” paid for children is raised, some women may decide not to have abortions and others who might otherwise keep unexpected or unwanted children may relinquish them for a price. In this analysis, keep in mind that, in many cases in which adoptions are private, prices are not monetary: Many (perhaps most) biological parents who relinquish under the current system consider assurances about the child being raised well to be adequate payment, perhaps bolstered by payments of medical costs by adoptive parents. However, higher rewards for surrendering children to adoption would almost certainly yield greater numbers of children available for adoption.

Figure 1

On the other side of this analysis – the demand side – most successful adoptive families are willing to pay a demand price of at least P₀ for the children available for adoption at Q₀. The parents who most desire children pay this price by courting the employees of adoption agencies to prove their commitment to adoption. Charging lower prices (less hassle) to adopting families would result in more adoptions. The demand curve in Figure 1 slopes down because people find substitutes as prices rise -- you may know people who treat their pets as child surrogates. Other families may abandon the quest for an adoptive child or postpone kids until they can afford them. Thus, demands and supplies in this market conform to the laws of supply and demand. At the legally permissible explicit price of zero, there will be Q₀ children available for adoption and Q₂ children demanded, leaving a shortage of at least Q₂ – Q₀.

Does this mean that under the current adoption system, Q₀ children are adopted, or that the economic costs to adopting parents are zero? Each answer is NO! Social concern about the wellbeing of foster and adopted children has generated a large bureaucracy to oversee their care. Applicants for adoption are carefully screened, and extensive efforts are made to match children and adoptive parents. Many questions are asked about such areas as finances and attitudes about sex, religion, race, and discipline. Common grounds for rejecting applicants may seem capricious: obesity, atheism, radical politics, or the desire for a career by the female member of an applying couple. Even when all barriers are hurdled, the process of becoming an "approved home" may take years because social workers lack incentives to act quickly or efficiently.

Indeed, persisting through this trying process is viewed as a way for potential adoptive parents to demonstrate their commitment to adoption. But approval does not guarantee that a family will be able to adopt. Each child is also screened; children and prospective adoptive parents alike must wait for a "match." In the 1970s, infants were seldom placed in an adoptive home at ages of less than three months; six months was common. This time lag has been reduced somewhat, but remains a problem, and older children or those with severe handicaps remain "hard to place." One consequence is that the adoption shortage has become so acute that such previously hard-to-place children as those who are racially mixed or mildly handicapped are now relatively easily placed. [Trans-racial adoption may also be another signal that racism in this country is abating, however slowly.] Even so, adoption agencies fail to find homes for many children who are available for adoption (quantity Q₀ in Figure 1) when a zero price is paid to the relinquishing parents.

Is the economic cost of successful adoptions zero? Far from it. As noted above, long waiting periods for both prospective parents and adoptable children entail substantial costs. Most successful adoptive families are willing to pay a demand price of at least P₀ for the Q₀children available for adoption, and pay this price by persisting, and by courting social workers. Prospective adoptive parents, however, are legally forbidden to pay an explicit monetary price greater than zero for a child. The result? Gray and black markets for infants flourish, with high prices being paid to doctors and lawyers willing to flirt with prosecution by acting as baby brokers. Consequently, many American couples now avoid the U.S. adoption system by adopting children from Eastern Europe, Asia, or South America.

Many children are also stranded in foster care for years under the current system because some biological parents run hot and then cold in their concern for their offspring. Some parental indecisiveness about relinquishment might be overcome were these parents simply paid. However, as noted above, the price paid for a child need not be monetary. – but it could be. In a black market exchange, of course, cold cash changes hands. Infants have been sold for more than $600,000. We should note, however, that the cost per current legal adoption is probably not far from the average of $75,000 or so that children bring on black or gray markets. More than $120,000 [adjusted for inflation] in tax revenues was spent per legal adoption in 1981, and the extended periods of waiting that confront both adoptive parents and children must be considered.

A Market Alternative

Many childless couples place values on children that exceed the (re)production costs to some natural parents. (Surrogate motherhood is evidence of this.) Demand prices for children exceed supply prices up to Q₁ adoptable children in Figure 1. Allowing the market to resolve the allocation of adoptable children would allow children who were not especially valued by their natural parents (those whose supply prices range from zero to P₁ to be “sold” to people who would value them more (those with demand prices of at least P₁.)

Drawbacks of a Market Solution

One counterargument against reliance on the market is that only the rich would be able to adopt. Under the current system, however, adoption agencies typically disqualify the childless poor because income weighs heavily when agencies screen applicants for adoption. Many poor people might even find adoption easier under a market system. In the absence of other evidence, willingness to pay is a reasonable measure of how much someone values something.

Another objection to the market solution is that explicit prices may provide incentives for kidnapping for the market. (Of course, the high hurdles facing couples who want to adopt provide even greater incentives for kidnapping, but, perhaps also, greater hurdles against long run success from kidnapping.) Birth certificates and footprinting would only partially impede determined thieves, and tattooing (common for valuable pets) is socially unacceptable. It is also possible that a "baby" industry might emerge. This would be morally repugnant to many people. Still another problem is that some people might buy children for such unacceptable reasons as child prostitution. Of course, child protection laws apply to all homes, whether natural or adoptive. Current kiddie-pornstars are often exploited by their natural parents.

Although a market for adoption would have many shortcomings, proposals to change any policy should not be evaluated against perfection, but rather against the current system, warts and all. At the very least, the current system might be modified so that private negotiations and agreements were allowed to play a role wherever this would benefit adoptees, adopters, and relinquishing parents. For example, the government might even want to allow monetary transactions for infants while continuing to monitor children's welfare closely during adoption proceedings.

Questions for Thought and Discussion

1. Would the ideas expressed in this issue seem less controversial if couched in terms of buying and selling the rights to be parents, with all the responsibilities that implies, instead of baldly discussing the buying and selling of babies?

2. Should adoptive families be more closely regulated than biological families? (Student opinion.) Appoint a student to be in charge of a state agency to detect and curb child abuse, and pose the following problem: "If you have a limited budget to perform your function and three lists of children--adopted, in foster care, and those residing with their natural parents--where would you send your investigators first? Second? Last?" (Mention the motivations that might exist for members of these three groups to have children. Foster parents may be good hearted people, or they may be most interested in the income from caring for children in a foster home. Most natural parents may want their children, but others may view their kids as unfortunate accidents. Adoptive parents definitely want children, or at least they did at one time--the motivations of some people in these three groups may change over time.)

3. Suppose you were in charge of a state adoption service and wanted to ensure the job security of agency employees. How might you respond to declining numbers of children available for adoption and growing numbers of couples trying to adopt? (ANSWER: make the application process more rigorous; potential adoptive parents are willing to jump through hoops up to the value of their demand prices.) Is it possible that your policy changes would increase the size of your agency? (ANSWER - yes. A 1979 study found that states' employment of adoption workers was negatively related to the per capita numbers of children available for adoption, and had grown across time as this figure had fallen.)

4. At what age should children's opinions at least partially determine what happens to them? Would you specify a different age for children going through adoption than for children being separated from one parent or the other because of divorce? If so, why? If you accept the free market solution for adoption, at what age should the sale of a child be prohibited? Why? (All these questions call for student opinion.)

Note: My wife and I are blessed. I drafted this paper in 1977, after the process of adopting our second child proved so much smoother and more humane, all around, than the grueling process we all endured with our first adoption– grueling for us as adoptive parents, and for our oldest, Jennifer, who deserved better treatment than she had received from a state adoption agency.

We adopted Jennifer in 1974, when she was 12-months old, through a state agency staffed by “adoption professionals” who seemed simultaneously disorganized, aloof, and manipulative. I’m convinced that Jennifer would have been far less confused as a child had she not been uprooted after a year of foster care. Nevertheless, today she’s happy and well adjusted, in a great relationship, and brings us joy during each of our frequent phone conversations. She’s also a very successful attorney, having graduated from law school summa cum laude.

An absolutely legal private arrangement brought Melissa into our lives in 1977. Beth, her birth mother, single-mindedly sought to ensure the baby she was expecting the prospect of a great family life, and contacted us through a mutual friend. We met her and the birth father (college undergraduates at that time) – and their parents and brothers and sisters. The hopes of Melissa’s birth parents have been realized as fully as was humanly possible. Melissa (who seems to have been born smiling) came home with us when she was three days old, graduated from college with honors, and is now a successful realtor in Chicago. This private arrangement was far warmer and more loving than the first adoption.

Our lives were enriched when Beth re-established contact in 1995, while she was finishing her doctorate in social work in Chicago. My wife’s response to Melissa and Beth’s renewed relationship was that “no one can have too many people who love them.” Our entire family gained one more cherished relative. We quickly became such close friends that Beth is now part of our extended family, and we are part of hers.

Cheers,

RTB