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A Statistical Equilibrium Approach to the Distribution of Profit Rates

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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.

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  • Ellis Scharfenaker & Gregor Semieniuk, 2015. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," SCEPA working paper series. 2015-05, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:2015-05
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    Cited by:

    1. Ellis Scharfenaker, Markus P.A. Schneider, 2019. "Labor Market Segmentation and the Distribution of Income: New Evidence from Internal Census Bureau Data," Working Paper Series, Department of Economics, University of Utah 2019_08, University of Utah, Department of Economics.
    2. Patrick Mokre & Miriam Rehm, 2018. "Inter-Industry Wage Inequality: Persistent differences and turbulent equalization," Working Papers 1818, New School for Social Research, Department of Economics.
    3. Deepankar Basu, 2017. "Quantitative Empirical Research In Marxist Political Economy: A Selective Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1359-1386, December.
    4. Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," Economics Letters, Elsevier, vol. 179(C), pages 29-32.
    5. Luis Daniel Torres Gonzalez, 2017. "Regularities in Prices of Production and the Concentration of Compositions of Capitals," Working Papers 1709, New School for Social Research, Department of Economics.
    6. Scharfenaker, Ellis, 2020. "Implications of quantal response statistical equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    7. Paulo L. Dos Santos & Jangho Yang, 2019. "The persistent and informative distribution of returns on capital," Economics and Business Letters, Oviedo University Press, vol. 8(3), pages 156-165.
    8. Gregor Semieniuk & Victor M. Yakovenko, 2020. "Historical Evolution of Global Inequality in Carbon Emissions and Footprints versus Redistributive Scenarios," Papers 2004.00111, arXiv.org.
    9. Paulo dos Santos & Ellis Scharfenaker, 2016. "Informational Performance, Competitive Capital-Market Scaling, and the Frequency Distribution of Tobin’s Q," Working Papers 1607, New School for Social Research, Department of Economics.
    10. Mundt, Philipp & Alfarano, Simone & Milaković, Mishael, 2020. "Exploiting ergodicity in forecasts of corporate profitability," Journal of Economic Dynamics and Control, Elsevier, vol. 111(C).
    11. Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," BERG Working Paper Series 145, Bamberg University, Bamberg Economic Research Group.
    12. Ellis Scharfenaker, 2020. "Statistical Equilibrium Methods in Analytical Political Economy," Working Paper Series, Department of Economics, University of Utah 2020_05, University of Utah, Department of Economics.
    13. Paulo L. dos Santos, 2017. "The Principle of Social Scaling," Complexity, Hindawi, vol. 2017, pages 1-9, December.
    14. Jonathan F. Cogliano, 2017. "Surplus Value Production and Realization in Marxian Theory - Applications to the U.S., 1987-2015," Working Paper Series 2017-01, Dickinson College, Department of Economics.
    15. Gregor Semieniuk & Isabella M. Weber, 2019. "Inequality in Energy Consumption : Statistical Equilibrium or a Question of Accounting Conventions?," UMASS Amherst Economics Working Papers 2019-18, University of Massachusetts Amherst, Department of Economics.
    16. Paulo L. dos Santos & Jangho Yang, 2018. "Arbitrage, Information, and the Competitive Organization of Distributions of Profitability," Working Papers 1803, New School for Social Research, Department of Economics.
    17. Ozlem Omer, 2018. "Equilibrium-Disequilibrium Dynamics of the US Housing Market, 2000-2015: A Quantal Response Statistical Equilibrium Approach," Working Papers 1809, New School for Social Research, Department of Economics.
    18. Adalmir Antonio Marquetti & Catari Vilela Chaves & Leonardo Costa Ribeiro & Eduardo da Motta e Albuquerque, 2021. "Rate of Profit in the United States and in China (2007–2014): A Look at Two Trajectories and Strategic Sectors," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(1), pages 116-142, March.
    19. Noe Wiener, 2019. "Diversity in Segmention. Patterns of Immigrant Competition in US Labor Markets," Working Papers 1901, New School for Social Research, Department of Economics.
    20. Noe Wiener, 2018. "Measuring Labor Market Segmentation from Incomplete Data," UMASS Amherst Economics Working Papers 2018-01, University of Massachusetts Amherst, Department of Economics.
    21. Ellis Scharfenaker & Duncan Foley, 2017. "Maximum Entropy Estimation of Statistical Equilibrium in Economic Quantal Response Models," Working Papers 1710, New School for Social Research, Department of Economics, revised May 2017.
    22. Jangho Yang, 2018. "Information Theoretic Approaches In Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 940-960, July.
    23. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".

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    More about this item

    Keywords

    Firm competition; Laplace distribution; Profit rate; Statistical equilibrium;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches

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