Open AccessThe persistent and informative distribution of returns on capital
Author(s) -
Paulo L. dos Santos,
Jangho Yang
Publication year - 2019
Publication title -
economics and business letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.197
H-Index - 4
ISSN - 2254-4380
DOI - 10.17811/ebl.8.3.2019.156-165
Subject(s) - profitability index , economics , econometrics , competition (biology) , capital (architecture) , distribution (mathematics) , point (geometry) , monetary economics , microeconomics , mathematics , finance , history , ecology , mathematical analysis , geometry , archaeology , biology
This Letter draws on series of very large national samples to show that cross-sectional distributions of realized returns on capital (RoC) are persistently well described by the same functional form: double stretched-exponentials. The Letter shows how the tails of these distributions can be understood as entropy maxima, suggesting complex patterns of competitive interactions across decentralized, market economies sustain formally persistent statistical equilibria in markets for capital. Such equilibria and their characteristics set the explanatory burden for successful economic accounts of the competitive regulation of profitability. They also point toward interesting new lines of inquiry on the systemic consequences of market competition in those economies and on the price structures it conditions.