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A Statistical Equilibrium Model of Competitive Firms

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  • Irle, Albrecht
  • Milaković, Mishael
  • Alfarano, Simone
  • Kauschke, Jonas

Abstract

We argue that the complex interactions of competitive heterogeneous firms lead to a statistical equilibrium distribution of firms? profit rates, which turns out to be an exponential power (or Subbotin) distribution. Moreover, we construct a diffusion process that has the Subbotin distribution as its stationary probability density, leading to a phenomenologically inspired interpretation of variations in the shape parameter of the statistical equilibrium distribution. Our main finding is that firms? idiosyncratic efforts and the tendency for competition to equalize profit rates are two sides of the same coin. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,10.

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Date of creation: 2008
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Handle: RePEc:zbw:cauewp:7362

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Keywords: Statistical equilibrium; maximum entropy principle; diffusion process; stochastic differential equation; competition; profit rate;

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References

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  1. Mishael Milakovic & Carolina Castaldi, 2004. "Turnover Activity in Wealth Portfolios," Computing in Economics and Finance 2004 120, Society for Computational Economics.
  2. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
  3. Stutzer, Michael, 1996. " A Simple Nonparametric Approach to Derivative Security Valuation," Journal of Finance, American Finance Association, vol. 51(5), pages 1633-52, December.
  4. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, 06.
  5. George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1.
  6. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January.
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Cited by:
  1. Erlingsson, Einar Jón & Alfarano, Simone & Raberto, Marco & Stefánsson, Hlynur, 2012. "On the distributional properties of size, pro fit and growth of Icelandic firms," MPRA Paper 35857, University Library of Munich, Germany.
  2. Alfarano, Simone & Förster, Niels & Milaković, Mishael & Mundt, Philipp, 2013. "The real versus the financial economy: A global tale of stability versus volatility," Economics Discussion Papers 2013-8, Kiel Institute for the World Economy.
  3. F. Wagner & M. Milaković & S. Alfarano, 2010. "What distinguishes individual stocks from the index?," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 73(1), pages 23-28, January.

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