Synonyms

Children; Family; Parenthood

Introduction

This entry tracks historical and recent developments in legal economic analysis of adoption. Focusing on the United States, it first traces historical market changes as evidenced by changing supply and demand of children and the emergence of submarkets for adoption through agencies (public or private) and independent adoptions. It then identifies current legal rules against baby-selling and adoption agency practices that mask the existence of adoption markets by banning payments to birth parents yet exempting from that ban payments to agencies and other adoption professionals. It concludes by describing economic proposals to narrow current gaps between supply and demand by creating incentives (or removing disincentives) through substitutes, subsidies, and reduced transactions costs. These solutions, if implemented, could prevent a good number of would-be parents from remaining childless, provide homes for many children who currently languish in foster care or group homes, and better recognize the costs that adoption imposes on birth parents.

Adoption Markets

History

The laws of supply and demand have long governed adoption. In the nineteenth century, norms against unwed motherhood and the lack of a social safety net made adoption a buyer’s market. The “price” of children whose parents could not raise them was so low that many birth mothers had to pay people known as “baby farmers” to take the children off their hands. In the custody of the baby farmers, that low value translated to low survival rates. Children lucky enough to survive were put to work, getting hired out for farm or domestic work. Gradually, adoptive parents became willing to pay to adopt. In the late nineteenth and early twentieth century, newspaper classified advertisements commonly listed children for adoption along with a price (Zelizer 1985; Herman 2008).

Gradually, adoption law and practice came to reject market rhetoric as society and legal rules began to view childhood as a vulnerable period spent in school instead of laboring in fields or factories. In 1851, Massachusetts passed the first adoption statute, which required that a child’s interests be accounted for in an adoption. Other states followed suit, eventually establishing standards for determining a child’s adoptability and adoptive parents’ suitability. Gradually, states completely replaced the birth family with the adoptive family courtesy of new birth certificates and sealed records. Along the way, agencies and social workers acquired a nearly exclusive gatekeeping function over both the adoption and information passing between birth and adoptive families. Limits on child labor and increased life spans due to industrialization and medical advances all contributed to these social and economic changes that justified higher investments in children’s human capital. Technologically, the advent of safe, affordable infant formula in the 1920s and 1930s further encouraged couples to adopt. By 1937, a magazine article could exclaim, “The baby market is booming . . . the clamor is for babies, more babies . . . We behold an amazing phenomenon: a country-wide scramble on the part of childless couples to adopt a child” (Zelizer 1985).

Adoption rates continued to rise until the early 1970s, when several phenomena contributed to both a rapid drop in the supply of infants available for adoption and increase in demand from new sources. On the supply side, more unmarried mothers could collect child support from the children’s fathers once the Supreme Court struck down as unconstitutional rules that relieved nonmarital fathers of financial responsibilities. Poverty was less likely to force a woman to relinquish her child for adoption as federal welfare programs expanded to cover more poor, often unmarried, women and their children. Rises in nonmarital births and single parenthood after divorce decreased the stigma of single motherhood.

Some changes in legal rules and cultural practices influenced both supply and demand. As women could get effective birth control and legal abortions, they became less likely to conceive or carry an unplanned pregnancy to term. That increased control made motherhood more of a choice than it had ever been, allowing some women to take full advantage of newly expanded opportunities to develop their human capital by pursuing a career. On the supply side, that increased access to well-remunerated work meant that more single women who did bear children could keep them. On the demand side, many women who had delayed conception while they established careers found their fertility diminished when they got around to having children.

Consequently, in 1972, nearly 20% of white single mothers placed their babies in adoptive homes, but by 1995, that rate decreased to 1.5% and has since dipped to about 1%. Black mothers, in contrast, have never relinquished in high numbers. Even before cases like Griswold v. Connecticut and Roe v. Wade expanded reproductive choices by decriminalizing birth control and abortion, only about two percent of black single mothers surrendered their infants for adoption. That low rate was due to many agencies’ unwillingness to place African-American babies and the willingness of extended kinship networks in the black community to take in those children. Since the 1970s black women’s relinquishment rate has dipped to nearly zero. By the late 1980s, this low supply of healthy infants translated to a hundred would-be adoptive parents competing to adopt each healthy infant available for adoption, according to the National Council for Adoption (Joyce 2013).

Agencies and adoptive parents continue to express preferences for some children over others. Prior to World War II, most agencies considered children of color and those with disabilities unfit for adoption, relegating them to institutions. While more agencies began to accept these children in the 1950s – increasing the supply of adoptable infants – many would-be adoptive parents retained their preference for white children. In the early twenty-first century, most would-be adoptive parents – a majority of whom are white – continue to prefer to adopt white over African-American children, though adoptive parents who are single or gay are more willing to create an interracial family through adoption (Baccara and Collard-Wexler 2012).

Adoption Markets Today

Today, adoption continues to function as a market, though rhetoric of both law and adoption professionals persists in masking its market characteristics. About 2.5% of American children are adopted, 1.6 million in 2000. Adoption professionals – agencies, attorneys, and social workers – generate fees of $2–3 billion annually (Baccara 2010). Agencies refer to adoption as a “gift” instead of an exchange, and statutes criminalize or otherwise prohibit payment of fees in connection with an adoption. But those statutes also exempt fees paid to professionals, and states enforce the statutes largely to penalize birth parents receiving any payment. Some states permit adoptive parents to pay for a birth mother’s maternity clothes, psychotherapy, and living expenses, while others prohibit those expenditures or impose strict time or monetary limits. A black or gray market persists in the shadow of these prohibitions, with adoptive parents or agencies paying for birth mothers’ expenses (Ertman 2003, 2015).

The legal adoption market is fragmented. A child could be placed through a private agency, through a public child welfare agency (“foster care”), or without agency involvement (“independent adoption”). An adoption may also be subject to rules imposed by a religiously affiliated agency, may involve relatives or nonrelatives, and could be domestic or international. While accurate data on adoption is scarce and rates vary over time, as of 2002, about 84% were domestic – evenly divided among familial and nonfamilial – with 16% international (which are nearly always nonfamilial). That same year, over half of the children adopted by nonrelatives were adopted out of foster care. Many of the children adopted out of foster care are older; suffer from physical, mental, and emotional disabilities; and/or are children of color (Bernal et al. 2007; Moriguchi 2012). This entry focuses on three categories that exhibit different market patterns: unrelated domestic adoption, adoption out of foster care, and independent adoption.

Within the first category – unrelated domestic adoptions – demand for healthy white infants far outstrips supply (Landes and Posner 1978). Consequently, adoptive parents commonly pay agencies higher fees to adopt those babies than to adopt children whom adoption professionals describe as “hard to place.” (Ertman 2015). Another common fee structure charges adoptive parents on a sliding scale, with higher-income adopters paying higher fees. Wealth and income gaps between whites and African-Americans, coupled with most adoptive parents’ preference for a child of their own race, combine to make it more expensive in general to adopt a healthy white infant than to adopt children who are older, of color, and/or disabled.

Adoptions in the second category – foster care – exhibit the opposite pattern: high supply of children and low demand by adoptive parents, generating what Elisabeth Landes and Richard Posner called a “glut” of children in foster care, a situation that they compared to “unsold inventory stored in a warehouse” (Landes and Posner 1978). Consequently, children in foster care may wait 2 years for adoption and get shuttled between 10 and 20 homes during those years. Only around ten percent – 50,000 – get adopted into permanent homes each year, and African-American children can wait twice as long as white kids to get adopted out of foster care (Beam 2013).

In the third category – independent adoption – comprehensive data is even more scarce than in agency adoptions. Many independent adoptions are stepparent adoptions – as when a divorced woman’s new spouse adopts a child from the prior marriage – which do not require an intermediary to match the children to their new families nor a study of suitability of adoptive families. The fees are largely for lawyers, rather than agencies, and do not depend on the characteristics of either parent or child. Some monetary payments are not legally binding, but nevertheless occur with regularity. A noncustodial birth father often demands a “price” for consenting to the adoption in the form of the mother agreeing not to pursue him for unpaid child support (Hollinger 2004). Another common payment – this one entirely nonmonetary – involves the birth parent retaining visitation rights in an agreement known as a Post Adoption Contact Agreement. These agreements are legally binding in about half the states (Ertman 2015).

Proposals to Narrow Gaps Between Supply and Demand

The market for adoption evidences inefficiencies. At least since the 1970s, supply and demand for two major types of adoption have been mismatched, with high demand coupled with low supply of healthy white infants and low demand coupled with high supply of children in foster care. Consequently, adoptive parents who are only willing to adopt a healthy, white infant may well remain childless, while as many as 125,000 adoptable children languish in foster care. At the fiscal level, adoption is less expensive than foster care. Between 1983 and 1986, adoption decreased government expenditures on foster care by $1.6 billion. Non-fiscal but nevertheless valuable benefits of adoption over foster care include the better health, behavioral, educational, and employment outcomes of children who are adopted over those who remain in foster care (Hansen 2008).

Foundational Work by Becker, Landes, and Posner

Economic proposals have sought to increase the supply for in-demand babies and increase the demand for hard-to-place children. Nobel Laureate Gary Becker’s 1981 book A Treatise on the Family established the relevance of economic tools to understand family forms. On the supply side of adoption, he suggested that birth parents are more likely to put what he calls “inferior” children “up for sale or adoption.” On the demand side, he postulated a “taste for own children, which is no less (and no more) profound than postulating a taste for good foods or any other commodity entering utility function” and that women are reluctant to commit “effort, emotion and risk” to children “without considerable control over rearing” as well as information ahead of time about the children’s “intrinsic characteristics” (Becker 1981). Legal economists Elisabeth Landes and Richard Posner further developed the theoretical model of adoption as a market in their highly influential 1978 article “The Economics of the Baby Shortage.” They identified the “potential gains in trade from transferring the custody of the child to a new set of parents” and cataloged the pros and cons of a “free baby market” in comparison to a likely black market that flourishes in part because of legal constraints on payments in adoption. Their proposal was quite modest. As “tentative and reversible steps toward a free baby market,” they proposed that agencies use fees charged to higher-income adoptive parents to make “side payments” to pregnant women to induce them to relinquish the child for adoption instead of terminating the pregnancy (Landes and Posner 1978). Many readers mistook this proposal for an open market in children – akin to slavery – and criticized its tendency to treat children as commodities (Radin 1996; Williams 1995), despite Posner’s clarification about the proposal’s narrowness (Posner 1987).

Recent Applications

Recent market proposals further develop the idea of openly marketizing adoption.

Increase Supply of In-Demand Infants

Legal reforms aimed to increase the supply of the most sought-after babies who are available for adoption would focus on birth parents – especially birth mothers – because they are the ones who generally make the decision whether to keep a child or place him or her for adoption. Legal economists have argued that legal rules and adoption professionals could make birth parents’ substitutes for adoption more expensive, use subsidies to encourage relinquishment, and lower transactions costs.

Make Birth Parents’ Substitutes More Expensive

Despite the apparent causal relationship between legal decisions granting women rights to birth control and abortion and plummeting number of infants available for adoption, empirical research has yielded mixed results regarding the effect of reproductive freedoms on adoption. One study found that states that legalized abortion before Roe v. Wade also had a 34–37% decrease in adoption of unrelated white children (Bitler and Zavodny 2002). However, other studies either found no statistically significant relationship between adoption and the price and availability of abortion (Medoff 1993) or a causal relationship between adoption and abortion availability but also found an unexpected effect of restrictive abortion laws decreasing the number of unwanted births (Gentenian 1999).

One proposal would impose barriers to abortion to increase the supply of healthy, white infants by making adoption a “two-sided market clearing institution” that remedies information asymmetries. It would increase the supply of sought-after babies through two legal changes: (1) allowing payments to birth mothers and (2) requiring women considering an abortion to hear a pitch from an adoption provider about the “economic incentives” should the birth mother “produce a child for the market” (Balding 2010).

Subsidize by Decreasing Birth Parents’ Disincentives to Relinquish

Birth parents, like other parents, generally prefer to raise the children they bear rather than surrender them for adoption. Legal economic scholars since the 1970s have proposed lifting the ban on payments to birth parents to help overcome the disincentive to relinquish. One scholar proposes that “baby market suppliers” – birth parents – “share in the full profits generated by their reproductive labor” (Krawiec 2009). Other scholars propose indirect payments, such as adoptive parents paying a birth mother’s legal expenses to ensure she fully understands her rights or paying the birth mother’s college tuition or job training expenses after the placement. These payments would have both monetary and nonmonetary benefits. Tuition payments in particular would reduce the chance of the birth mother having to relinquish another child since her education and training should improve her ability to support any child she gives birth to in the future (Hasday 2005).

Birth parents may deem one type of nonmonetary exchanges as more valuable than any monetary payments since it reduces somewhat the emotional cost borne by birth parents who lose all contact with their children. As adoption rates plummeted in the 1970s, that decreased supply and increased demand enabled birth mothers to exercise more bargaining power. Agencies began to let the birth mothers select the adoptive parents and also negotiate with prospective adoptive parents to get them to make promises to raise the child in a particular way (i.e., Catholic or with music education) and to provide the birth mother with periodic letters, pictures, email contact, and even in-person visits as the child grows up. These latter agreements, known as Post Adoption Contact Agreements, are increasingly common and increasingly enforced by courts (Ertman 2015).

Lower Transactions Costs

Other scholars seek to increase adoptions by decreasing transactions costs. One scholar critiques the uncertainty created by statutes that allow a long period for birth parents to revoke their consent to an adoption on the grounds that courts could determine voluntariness of that consent at an early point, creating certainty for a child’s place in his or her new family (Brinig 1994).

Increase Demand for Hard-to-Place Children

Legal reforms aimed to increase the demand for children in foster care focus on adoptive parents because they are the ones who decide whether and whom to adopt. Legal economists have argued for making adoptive parents’ substitutes for adopting a foster care child more expensive, subsidizing foster care adoptions to reduce the price of adopting a special needs child, and lowering transactions costs.

Make Adoptive Parents’ Substitutes More Expensive

Many, if not most, adoptive parents turn to adoption only after infertility treatments fail. Since the 1990s, reproductive technology techniques – especially in vitro fertilization (IVF) – have improved so that they more effectively help women become pregnant. In that same period, rates of domestic adoption have continued to decline. Accordingly, economists have asked whether IVF is a substitute for adoption. One study found that between 1999 and 2006, a 10% increase in adoption correlated with a 1.3–1.5% decrease in the number of IVF cycles performed. The correlation was higher when the researchers focused on infant adoptions, older adoptive mothers, and international adoption. Unsurprisingly, since adoption by relatives occurs in specialized circumstances such as stepparent adoption, prevalence of IVF does not correlate with those adoptions (Gumus and Lee 2012).

Legal reforms could make IVF more expensive to pull more adoptive parents toward children in foster care. A state legislature could remove subsidies to IVF such as state-mandated insurance coverage for the expensive procedure or require a formal legal process akin to adoption in IVF procedures using donor eggs (Appleton 2004).

Some scholars contend that race matching reduces demand for foster care children, since many adoptive parents are white and most children in foster care are either African-American or Latino. If the race of one child substituted for the race of another, the reasoning goes, then federal laws and adoption policies that prohibit delaying or denying an adoption because of the child or adoptive parents’ race help the market clear faster. Yet empirical research indicates that race matching does not reduce the number of adoptions (Hansen and Hansen 2006).

Subsidize Adoption out of Foster Care

Subsidies have been among the most effective tools to spur demand for children in foster care. Because many prospective adoptive parents cannot afford the $30,000 or more required to adopt an infant through a private agency, adopting a child through a public agency may be the only available path to parenthood. Since the 1970s the federal government has enacted subsidies to encourage these adoptions, and empirical research has demonstrated the positive and statistically significant effect of subsidies on the rate of those adoptions (Hansen 2007).

Inefficiencies persist, however. Subsidies that continue after the adoption offset the costs borne by adoptive families who care for children with special needs (often due to early adverse experiences that landed them in foster care). But these adoption assistance programs are administered by states rather than the federal government, which has caused variation among states. Some states issue payment based on the type of adoptive family rather than the needs of the child, redirecting the subsidy away from its intended purpose (Hansen 2008).

One proposal to increase demand for children in foster care suggests an “all-pay simultaneous ascending auction with a bid cap” with prospective parents submitting sealed bids. Profits generated by placing healthy white infants would be used to place the children they call “less-desirable.” (Blackstone 2004; Blackstone et al. 2008).

Lower Transactions Costs

Some legal economists have critiqued the agency gatekeeping function as extracting surplus (Blackstone et al. 2008) and increasing transactions costs (Brinig 1994). One proposal would reduce search costs by replacing that agency function with a national database, detailing the characteristics and requirements of prospective adoptive and birth parents and children on a platform akin to the Multiple Listing Service used by real estate agents (Balding 2010). A second proposal would impose a 10% tax on adoption expenses and channel the funds generated in high-price adoptions to subsidize adoption of children out of foster care (Goodwin 2006). A third proposal, already in place in many states, reduces search costs borne by both agencies and the children shuttled through foster care placements while they wait to be adopted. Instead of limiting the search for appropriate parents to married heterosexuals, this approach expands the definition of suitable parents to include single people and same-sex couples. This expansion shortens the search because single and gay adoptive parents are more willing to create interracial families than their married, heterosexual counterparts (though whites in all three groups generally express a preference for white children) (Baccara and Collard-Wexler 2012).

Conclusion

Despite sharp criticism of early legal economic literature proposing economic frameworks for viewing adoption and remedying the two problems of queues of adoptive parents waiting to adopt healthy infants and queues of foster care children waiting to be adopted, economic and legal researchers continue to propose market solutions to remedy the situation.

Cross-References