Why do families foster children? A Beckerian approach

Less than half of the tens of thousands of older abused and neglected children in foster care are able to find a foster family to take care of them while the rest are placed in restrictive group home settings. This paper proposes that households choose to foster children following a Becker-style model in which households maximize the human capital of the children they care for and can receive human capital flows from both foster children and biological children. The demand for foster children and the age of foster children depends on the number of biological children and the household wage. I test the main predictions of the model using twins as an instrument and a rich set of household observable characteristics. A parameterized version of the model suggests that the substitutability of foster children and biological children is a stronger lever affecting fostering than foster care subsidies, and the wage of a household is almost as important as the subsidy in determining fostering.