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Title:A Statistical Equilibrium Model of Competitive Firms PDF Logo
Authors:Irle, Albrecht
Milaković, Mishael
Alfarano, Simone
Kauschke, Jonas
Issue Date:2008
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2008,10
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.
Subjects:Statistical equilibrium
maximum entropy principle
diffusion process
stochastic differential equation
competition
profit rate
JEL:D21
C16
E10
L10
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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