Designing the Menu of Licenses for Foster Care

Altinok Ahmet and Mac Donald Diana E.

No 2023-19, Working Papers from Banco de México

Abstract: In the United States, prospective foster parents must become licensed by a child welfare agency before a foster child can be placed in their care. This paper contributes by developing a theoretical matching model to study the optimal menu of licenses designed to screen foster parents. We construct a two-sided matching model with heterogeneous agents, adverse selection, search frictions, and a designer who coordinates match formation through a menu of contracts. We focus on incentive compatible contracts, examine optimal allocations and transfers, and analyze equilibrium sorting patterns. There are three main results: (i) optimal allocation calls for a segregation of the market, (ii) a simple transfer schedule does the job, (iii) complementarities do not ensure that Positive Assortative Matching (PAM) will arise in equilibrium, thus we provide an additional condition that guarantees it. Our results suggests that the menu of licenses used in practice, exhibits some of the properties of the optimal solution. However, the menu might not be reaching its screening objective.

Keywords: Adverse Selection; Matching; Sorting; Search; Foster Care (search for similar items in EconPapers)
JEL-codes: C78 D47 D82 (search for similar items in EconPapers)
Date: 2023-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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