Attached, please find some articles, one about cemeteries.  In response to these articles, the head of the New York State Mortuary Association, an organization representing funeral homes, called you up on Halloween, and asked you to do some work for them.  He cited your expertise with asymmetric information.

            “What’s the problem?” you said, “Aren’t people dying any more?  Don’t worry; sooner or later everyone will be your customer.  Guaranteed.”

            “That’s not the problem,” he said.  “The problem is that people are trusting us less these days, and they’re trusting cemetery operators less.  That means less business.  That’s bad for us, and it’s bad for customers too.”

            “How’s it bad for customers?”

            “Let me give you an example.  Suppose you want a 40-foot high statue of yourself on your grave, suitably floodlit, and you want it so bad that you’re willing to pay what it takes to build and maintain it, and then some.  But if you can’t be sure that the job will be done even if you pay for it, you may never pay for it.  Checking up on a job like that is pretty difficult when it’s your own grave.”

            “Sounds like an efficiency problem to me.  But what about relatives?  Can’t they do the checking for you?” 

            “Not always.  Some people don’t have relatives they can count on.  DO you really think you’re so wonderful that your grandchildren are going to stop by your grave every Sunday when you’ve been gone for fifty years?  And then there are things that families can’t check on — like whether the body’s still there.”

            “Okay.  I get the point.  But that’s a problem for cemeteries and customers.  Why are the funeral homes concerned?”

            “All sorts of reasons.  One, because some of it rubs off on us, too: people don’t know whether we’ll cheat them or not.  After all, we don’t have any testimonials from satisfied customers.  Two, we’re all going to be customers, too, someday.  Three, it makes a difference to what we do.  IF everybody gets cremated, for instance, because they can’t make good deals with the cemeteries, then we sell a whole different, cheaper bunch of coffins.  Four, cemetery and funeral home services are complements; a rise in the price of burial shifts the demand curve for funeral homes down.  People are morel likely to go to New Jersey or Florida to die if they won’t get treated right in New York.  Finally, we just want to try to help our customers.”

            “Okay,” you said, “what should we do?”

            “I’d like about a twenty minute presentation to my board of directors in about two weeks.”

            “You got it.”

            Among the questions you might want to think about are:

·                    Who are the consumers of the output of the cemetery industry?  What sort of contracts would these consumers like to enter into?  Why aren’t these contracts available in the normal course of events?

·                    Is anybody made worse off when something happens to the body of a dead person, and nobody who cares finds out about it?  When nobody alive cares about that body?

·                    Why don’t profit-making firms enter this industry?

·                    What is the argument for state regulation of non-profit cemeteries?  What aspects of cemetery operation should the state regulate?

·                    What are the weaknesses of state regulation?

·                    Think about veterans’ cemeteries (e.g. Arlington National).  Why doesn’t the state run cemeteries itself?  If you think it shouldn’t, do you think veterans’ cemeteries should be privatized?  If not, what are the relevant differences?

·                    How should cemeteries in New York be operated and regulated?

·                    Should cemeteries be formally or informally regulated by funeral homes?  Maybe they could keep records among themselves.  Do they have the right incentives to do so?

·                    Could the cemeteries monitor themselves? Could the monitoring be made credible?  Does it matter whether it’s credible?