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Rates of profit as correlated sums of random variables

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  • Greenblatt, R.E.

Abstract

Profit realization is the dominant feature of market-based economic systems, determining their dynamics to a large extent. Rather than attaining an equilibrium, profit rates vary widely across firms, and the variation persists over time. Differing definitions of profit result in differing empirical distributions. To study the statistical properties of profit rates, I used data from a publicly available database for the US Economy for 2009–2010 (Risk Management Association). For each of three profit rate measures, the sample space consists of 771 points. Each point represents aggregate data from a small number of US manufacturing firms of similar size and type (NAICS code of principal product). When comparing the empirical distributions of profit rates, significant ‘heavy tails’ were observed, corresponding principally to a number of firms with larger profit rates than would be expected from simple models. An apparently novel correlated sum of random variables statistical model was used to model the data. In the case of operating and net profit rates, a number of firms show negative profits (losses), ruling out simple gamma or lognormal distributions as complete models for these data.

Suggested Citation

  • Greenblatt, R.E., 2013. "Rates of profit as correlated sums of random variables," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(20), pages 5006-5018.
    • Handle: RePEc:eee:phsmap:v:392:y:2013:i:20:p:5006-5018
    DOI: 10.1016/j.physa.2013.06.040
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    1. Greenblatt, R.E., 2014. "A dual theory of price and value in a meso-scale economic model with stochastic profit rate," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 518-531.

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