A statistical equilibrium approach to the distribution of profit rates

Scharfenaker, Ellis and Semieniuk, Gregor (2016) A statistical equilibrium approach to the distribution of profit rates. Metroeconomica. ISSN 0026-1386

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Motivated by classical political economy we detail a probabilistic, “statis- tical equilibrium” approach to explaining why even in equilibrium, the equal- ization of profit rates leads to a non-degenerate distribution. Based on this approach we investigate the empirical content of the profit rate distribution for previously unexamined annual firm level data comprising over 24,000 publicly listed North American firms for the period 1962-2014. We find strong evidence for a structural organization and equalization of profit rates on a relatively short time scale both at the economy wide and one- and two-digit SIC industry levels into a Laplace or double exponential distribution. We show that the statistical equilibrium approach is consistent with economic theorizing about profit rates and discuss research questions emerging from this novel look at profit rate distributions. We also highlight the applicability of the underlying principle of maximum entropy for inference in a wide range of economic topics.

Item Type: Article
Keywords: Firm competition, Laplace distribution, Profit rate, Statistical equilibrium, Principle of Maximum Entropy
Schools and Departments: School of Business, Management and Economics > SPRU - Science Policy Research Unit
Subjects: H Social Sciences > HB Economic theory. Demography > HB0075 History of economics. History of economic theory Including special economic schools
H Social Sciences > HB Economic theory. Demography > HB0238 Competition. Monopolistic competition
Depositing User: Gregor Semieniuk
Date Deposited: 11 May 2016 13:55
Last Modified: 08 Jun 2018 01:00
URI: http://srodev.sussex.ac.uk/id/eprint/60618

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