A Statistical Equilibrium Approach to the Distribution of Profit Rates

Ellis Scharfenaker and Gregor Semieniuk

No 2015-05, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: Following the work of Farjoun and Machover (1983) who propose a probabilistic approach to classical political economy, we study the empirical distribution of the rate of profit for previously unexamined firm level data. We detail the theoretical rationale of the principle of maximum entropy which Farjoun and Machover use to predict a stationary profit rate distribution. Then we examine their hypothesis of gamma distributed profit rates for over 24,000 publicly listed North American firms from 1962-2014 and find strong evidence for the organization of the distribution into a double exponential, or Laplace like distribution both at the economy wide and one and two digit SIC industry levels. In addition, we find that the otherwise stationary profit rate distributions exhibit a structural change following the 1980s as they display a surge in the fraction of firms earning negative profits. We offer an alternative justification for the Laplace distribution based on maximum entropy reasoning and show that this distribution can be surprisingly explained by a single constraint on the absolute deviation of profit rates from the mean.

Keywords: Firm competition; Laplace distribution; Profit rate; Statistical equilibrium (search for similar items in EconPapers)
JEL-codes: B4 B5 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-07
New Economics Papers: this item is included in nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: A Statistical Equilibrium Approach to the Distribution of Profit Rates (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:epa:cepawp:2015-05

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