–1 vote
asked ago in General Economics Questions by (2.7k points)
edited ago by
Firms are always hiding their costs because that should make them more competitive against other companies that have to schedule a production of similar goods or services with different resources. But, what if the government have that information and uses it secretly to know the real percentil of profit earned by a company with every product? It can help to tax firms in accordance to the profit like now but can help to control inflation, because if a firm is earning a profit of 100% on every product the government can tax proporcionately to stop the growth of prices. I know that a huge number of companies lie in their anual accounting papers. In Spain supermarkets declare having a 1% of profit over their costs. This method can be complex but it should correct this kind of mistakes.

1 Answer

+1 vote
answered ago by (3.3k points)
Short answer: definitely.  There are many cases where the government is basically the only purchaser of the good so there is no market to determine the price.  For instance

1.  Military weapons
2.  Medicare items
3.  Large scale infrastructure projects  

For instance, when I was at a think tank in DC we had a contract to try to come up with alternative reimbursement measures for durable medical equipment.  The problem was that medicare paid for like 98 percent of many types of durable medical equipment.  The preexisting policy was that medicare reimbursed 80 percent of the MSRP.  But once a firm knows that they reimburse 80 percent of whatever price you set, then firms have an incentive to set really high prices.  So the government was stuck in a bad eqbm.

Other approaches were a functional technology assessment where the government tries to do an engadget style teardown of the thing to determine how much it cost to make it.  

Another approach could be a hedonic approach to price attributes of goods to see how much an additional attribute should be priced.  Of course, that assumes you can get the right prices of the attributes to begin with....
commented ago by (2.7k points)
edited ago by
Thank you for your answer. I had not think of markets with an only purchaser like you point out. For that kind of market the techniques you are observing are a good choice. If you extend them to the whole producers I think that they can be too complex so the companies can do the task instead of the government and the government can check randomly goods or services with those techniques. I had forgotten that if you set a digital transaction system you can almost always check the cost of every item or services based on the trasactions the company did to produce it.