The micro-economics of foster care in South Australia

The South Australian foster care system is plagued by problems of both supply and demand. Decreases in the availability of residential care and suitably trained foster carers has led to a shortage of placements to meet current demand. At the same time, increased selectivity in the intake of children into care has led to an over-concentration of more challenging children who either cannot be placed in foster care, or are being placed with the support of significantly higher loadings or payments. In this paper, it is argued that these problems can be understood conceptually using basic micro-economic principles, namely: demand-supply curve analysis, separation of market segments, and supply elasticity. It is argued that the supply of placements has become increasingly price-inelastic due to the nature of demand (the type of child), and that increasing short-term payment rates only serves to magnify the problem by artificially maintaining unsuitable care arrangements. Alternative solutions, such as the introduction of training and professional foster carers, are discussed.