Almost 40 Other States Allow Joint Ownership of Funeral Homes and Cemeteries, Why Not Wisconsin?
August 19, 2013
Wisconsin strictly prohibits the joint ownership of funeral homes and cemeteries. The MacIver Institute, in conjunction with David E. Harrington, the Himmelright Professor of Economics at Kenyon College and Jaret Treber, an associate professor of economics at Kenyon College, has determined that this unneeded prohibition will cost families in the Badger State at least $15.5 million over the next ten years.
Wisconsin's law, first adopted over 70 years ago, says, "No cemetery [may] permit a funeral establishment to be located [there]," nor have a "financial interest" in one.
Last session, Rep. Evan Wynn introduced legislation to repeal the prohibition on joint ownership. During this debate, another legislator said that better empirical evidence was needed.
This report presents the empirical evidence that shows Wisconsinites would realize significant savings, anywhere from $15.5 million to $27.6 million over the next ten years, if state government would let the free market work.
While Wisconsin is one of only two states that strictly prohibit combination ("combo") funeral homes and cemeteries, there are nine other states and the District of Columbia that have some type of regulation on joint ownership. The repeal of this burdensome law would expand the market and open it to new businesses.
By opening the market to more businesses, it would create greater competition within the industry. This competition would give consumers more choice, therefore driving prices down. The report shows Wisconsin families would save at least $15.5 million in 10 years, and $26.4 million in 20 years*.
According to Harrington and Treber, "there are substantial savings from having a funeral handled by a combo rather than a stand-alone: our estimates range from $492 to $880. These estimates equal the difference in cost-to-revenue ratios between combos and stand-alones multiplied by the average funeral expenditures at stand-alone funeral homes."
It is these lower costs that give combos an economic advantage over stand-alone funeral homes, providing for more competition. Due to increased efficiency (Filling out paperwork once instead of twice, purchasing a burial plot at the same time the visitation is planned, etc.), combos can drive down the the market price and save consumers money.
However, critics that support the regulatory laws say repealing them will reduce competition and put stand-alone funeral homes out of business. The MacIver Institute's report explains this is not the case.
Combo firms are preferred by consumers because of their greater efficiency and lower costs. Families can complete all the planning in one location, instead of doubling up on the process. The research shows that many families will travel past stand-alone firms on their way to a combo, but it is far from limiting the competition within the market between stand-alone firms and combos.
Harrington and Treber wrote in their original study:
Figure 1 illustrates the dramatic effect of anti-combo laws on funeral markets. The top two maps are for similarly sized metropolitan statistical areas (MSAs) Milwaukee and Kansas City, and the bottom two are of larger metropolitan areas, Detroit and Dallas-Fort Worth. The MSAs on the left side are located in states--Wisconsin and Michigan--with anti-combo laws, while the two on the right come from states--Kansas, Missouri, and Texas--that allow cemeteries to own or operate funeral homes.
Looking at the maps, it is clear that metropolitan areas in states without anti-combo laws have a substantial number of combos, but they still have plenty of stand-alone funeral homes. Stand-alone funeral homes serve an important role, catering to the people in the neighborhoods that surround them. It is clear from the maps that the existence of combos does not diminish the importance of stand-alone funeral homes.
Anti-combo laws prevent the free market from finding the best price for consumers, and in Wisconsin, that could cost families more than $15 million over the next 10 years. If Wisconsin did not have this law, new businesses could enter the market, ensuing greater competition within the industry and giving consumers more choice. The research shows that this government regulation is one more obstacle that is costing Wisconsinites millions.
To see the original study, click here.
*Total cost savings represents the discounted value of the stream of annual savings using a discount rate of 3.5 percent. A discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.