Transcript How can matchings be increased in the adoption market?

The Adoption Market:
How can the number of parentchild matchings be increased?
MAHIMA CHAWLA
ELIZABETH GORDON
Overview
 How does the domestic US adoption market work?
 What are the problems with the adoption market?
 Literature solution: Auctions & Subsidies
 Our solution: Add a monthly fee to waiting time
Defining Terms
 High quality child (HQ): Healthy and Young
 Low quality child (LQ): Unhealthy and Old
 Matching: a pairing between adoptive parent(s) and
child that results in legal adoption of child
 Acceptable Threshold: the minimum quality child
that adoptive parents are willing to adopt for a given
monetary cost of waiting
How does the domestic adoption system work?
 2-sided market
 Public and private adoption agencies
 Price cap for adoption
 Steps for adopting a child:
1.
Select an adoption agency
2.
Complete screening and home-study (fee required)
3.
Social worker searches for, identifies and evaluates
multiple potential children (search and information
exchange period)
4.
Child’s social worker makes final decision on adoptive
parents
The problem in the adoption market
What is the problem?
 Shortage of high quality children and surplus of low quality children
indicate the market is not clearing
Why is this a problem?
 The goal of the adoption markets is to maximize the number of
matchings
 Shortage of HQ children = parents left without a child
 Surplus of LQ children = children left without a parent
Looking forward…
 Can we increase the number of matchings in the adoption market by
making previously unacceptable matches acceptable and matching
unmatched children to unmatched parents?
What causes this problem?
 Literature says the problem is the result of adoptive
parents’ preferences


Young children > Old children
Healthy children > Unhealthy children
 Result:
 Demand for HQ children > Demand for LQ children
However, this only causes a problem when a price cap
is introduced…
How does the shortage of HQ children arise?
Price
Supply
Price Cap
$30,000
Demand
Quantity
Shortage
How does the surplus of LQ children arise?
# babies
T* =adoptive parents’ acceptable
threshold with no monetary cost of waiting
A = children adopted
NA = children not adopted
x
Stage 0
A
NA
T*
# babies
Stage 1
Quality
of Baby
Stage n
# babies
(n+1)x
2x
x
NA
A
T*
x
Quality
of Baby
NA
A
T*
Quality
of Baby
How can the number of matchings in the
adoption market be increased?
 Literature solution
•
Blackstone presents an auction and subsidy solution
to match otherwise unmatched children and
adoptive parents
 Our solution
•
We suggest adding a monthly fee, paid from adoptive
parents to the social worker, during the search and
information exchange period of adoption
How is the adoption market currently like an
auction?
 Blackstone likens adoption market to fixed-price all-
pay auction
 Fixed-price: Fixed fee for adoption based on costs;
these are not related to quality of the child

No benefit to paying more, no option to pay less
 All-pay: Fees paid and time spent waiting are sunk
costs unrelated to whether adoptive parents receive a
child.

Unmatched parents still pay fees
Blackstone’s proposed auction solution…
 An all-pay simultaneous ascending auction with a
bid cap
All-pay: ensures parents with a strong motive will
participate
 Simultaneous: results in more aggressive bidding 
revenue maximizing  larger endowment
 Bid Cap: incentivizes low-income prospective parents
to participate

Blackstone’s auction solution continued…
 Adoptive parents submit bid for a child or split their
bid among multiple children
 Multiple bidding rounds until one set of adoptive
parents remains  receives child
 End of each round, bids are pooled and allocated as a
subsidy to low quality children based on health costs
 Result: Unmatched parents unable to obtain a high
quality child begin bidding on endowed low quality
children  increase matchings
Changing “effective quality” of a child with
endowments
# babies
Stage n
# babies
(n+1)x
x
Stage n
(n+1)x
NA
x
A
T*
Quality of
Baby
NA
A
A
T*
Effective quality = child’s quality relative to adoptive
parents’ threshold
Quality of
Baby
Problems with Blackstone’s auction and
endowment solution
 Placing a price/bid on a baby is often seen as socially
unethical
 It is unclear how ties are broken when the bid cap is
reached by multiple bidders in a round.
 Difficult to implement logistically and disseminate
information
 Makes the adoption market one-sided instead of
two-sided
Motivations for our solution
 Recall our solution:
 Add a monthly fee to search period
 Search theory: “studies buyers or sellers who
cannot instantly find a trading partner, and must
therefore search for a partner prior to transacting”
 McCall has a paper on job search and suggests “as
c increases, the length of search decreases”
o
o
c = Marginal cost of generating another job offer
Reservation wage declines over time as worker runs out of money
while searching
Applying McCall’s job search to the adoption
market
 Proposal: By adding a monthly cost to the search
period, we can reduce the length of search period
and thus increase the number of matches in the
adoption market
 The monthly fee equivalent to “c”
 Reservation wage equivalent to acceptable threshold
 Reservation price is the maximum that an adoptive
parent is willing to pay to obtain a child
Current system of fixed fees
 Adoptive parents face fixed monetary costs regardless
of waiting period


No monetary cost to preferring HQ children
No monetary costs to having a high acceptable threshold
 Incentive to remain in search period until either a HQ
child is obtained or frustration lowers acceptable
threshold  long search period
 Result: shortage of high quality children and surplus
of low quality children
How does a monthly fee affect length of search
period?
 By adding a monthly fee, the search
period becomes a fixed amount of
time dependent on adoptive
parents’ initial reservation price
 Reservation price declines over
time as adoptive parents shell out
money
 As time approaches n, adoptive
parents will risk leaving the market
unmatched
 How would you react to
approaching time n?
Reservation
price
n
Time
Understanding quality as a spectrum
 While we have been defining children as “HQ” and
“LQ”, it is important to remember that a child’s
quality falls on a spectrum.

Quality child A ~ Quality child B
# babies
x
A B
T*
Quality of
Baby
Why impose a monthly fee?
 Recall that the acceptable threshold
is the minimum child quality that
adoptive parents are willing to adopt
for a given monetary cost of waiting
 As time approaches n:
1.
2.
3.
4.
Reservation price falls
Remaining search period decreases
Probability of finding a child above
the initial acceptable threshold
decreases
Taking into account added cost to
waiting time, acceptable threshold
falls
Reservation
price
R
0
Acceptable
Threshold
T*
n
Time
Tipping
point
Lowest
acceptable
quality
 Result: increase in the number of low
quality children matched
Time
Conclusion
 Goal: Increase the number of matchings in the
adoption market
 Our Solution: add a monthly fee to the search period,
ultimately lowering the parents’ acceptable threshold
and increasing the number of matchings
 Further steps:
 What is the optimal size of this fee to be effective?
References
Blackstone, E., A. Buck, and S. Hakim. "Privatizing Adoption and
Foster Care: Applying Auction and Market Solutions." Children
and Youth Services Review 26.11 (2004): 1033-049.
Blackstone, E., A. Buck, S. Hakim, and U. Spiegel. "Market
Segmentation in Child Adoption." International Review of Law
and
Economics 28.3 (2008): 220-25.
Goodwin, Michele. "The Free-Market Approach to Adoption: The
Value of a Baby." Boston College Third World Law Journal 26.1
(2006): 61-79.
Landes, Elisabeth M., and Richard A. Posner. "The Economics of the
Baby Shortage." The Journal of Legal Studies 7.2 (1978): 323-48.
McCall, John J. "Economics of Information and Job Search." The
Quarterly Journal of Economics 84.1 (1970): 113-26.