As for profits, interest, depreciation, and land rent, they are added or adjusted to eliminate further divergences between established prices and factor costs.
In sum, what we are suggesting here is that the size of the implicit grants economy can be measured by the gross divergences between market prices and adjusted factor costs.
9) Similarly, in a centrally planned economy, should we use some adjusted factor cost prices as the benchmark or use shadow prices based on input-output tables?
An operational solution for the identification and measurement of implicit grants was indirectly provided by Abram Bergson (1953 and 1961) in his discussion of the Adjusted Factor Cost Standard (AFCS).
The ruble prices of 1937 deviate from adjusted factor cost on various accounts, among the chief are turnover [or sales] taxes, subsidies, profit charges, which are more or less unrelated to adjusted factor cost, and inadequate depreciation charges.
The "divergences" listed above are, by definition, implicit grants if we use the Adjusted Factor Cost Standard as a benchmark.
for practical purposes the tax on intermediate products like one on final products is a source of divergence between market prices and an appropriate factor cost valuation" (Bergson, 1961, p.
It also helps us to state clearly what the norm or benchmark is from which implicit grants are measured: "On the one hand, I take as a norm the adjusted factor cost standard of valuation pertinent to the appraisal of production potential (and perhaps also to welfare in terms of planners' preferences), and endeavor to adjust the national income data for major divergences between ruble prices and this standard.
To estimate these in practice, the Adjusted Factor Cost Standard (AFCS) is used.