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A Statistical Equilibrium Approach to the Distribution of Profit Rates
Author(s) -
Scharfenaker Ellis,
Semieniuk Gregor
Publication year - 2017
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12134
Subject(s) - profit rate , economics , profit (economics) , econometrics , probabilistic logic , rate of profit , principle of maximum entropy , inference , statistical inference , entropy (arrow of time) , mathematical economics , microeconomics , mathematics , computer science , statistics , thermodynamics , physics , artificial intelligence
Abstract Motivated by classical political economy we detail a probabilistic, ‘statistical equilibrium’ approach to explaining why even in equilibrium, the equalization 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.