## Saturday, March 04, 2017

### Bifurcations Of Roots Of A Characteristic Equation Figure 1: Rates of Profits for Beta Technique

I have previously considered all roots of a polynomial equation for the rate of profits in a model, of the choice of technique, in which each technique is specified by a finite series of dated labor inputs. One root is the traditional rate of profits, but there are uses for the other roots:

• All roots appear in an equation defining the Net Present Value (NPV) for the technique, given the wage and the rate of profits.
• All roots can be combined in an accounting identity for the difference between labor commanded and labor embodied, given the wage.
I thought it of interest to know whether these non-traditional roots are real or complex, as they vary with the wage. I am considering multiple roots in an attempt to build on and critique Michael Osborne's approach to multiple interest rate analysis.

I also have considered examples of models of the production of commodities by means of commodities, in which at least one commodity is basic, in the sense of Sraffa. And I have attempted to apply or extend my critique of multiple interest rate analysis to these models. The point of this post is to illustrate possibilities on the complex plane for multiple interest rates in these models.

A technique in models of the production of commodities by means of commodities, as least in the case when all capital is circulating capital, is specified as a vector of labor coefficients and a Leontief input-output matrix. In parallel with my approach to techniques specified by a finite sequence of dated labor inputs, consider wages as being advanced - that is, not paid at the end of the year out of the surplus - in such models. Given the wage and the numeraire, one can construct a square matrix in which each coefficient is the sum of the corresponding coefficient in the Leontief input-output matrix and the quantity of the commodity produced by that industry that is advanced to the workers, per unit output produced. I call this matrix the augmented input-output matrix.

A polynomial equation, called the characteristic equation, is solved to find eigenvalues of the augmented input-output matrix. The power of this polynomial is equal to the number of commodities produced by the technique. The number of roots for the polynomial is therefore equal to the number of commodities. A rate of profits corresponds to each root. Assume the Leontief input-output matrix is a Sraffa matrix and that the wage does not exceed a certain maximum. Under these conditions, the Perron-Frobenius theorem picks out the maximum eigenvalue of the augmented input-output matrix. The corresponding rate of profits is non-negative, and the prices of production of these commodities are positive at the given wage. I was not able to find an application for the other, non-traditional rates of profits.

I present a numerical example in this working paper. This is a three-commodity example with two techniques. Figure 1 graphs the three roots, at different level of wages, for the Beta technique in that example.

In a previous blog post, I extend that example such that managers of firms have a choice of process for producing each of the three commodities. As a consequence, a choice among eight techniques arises. And one can draw a graph like Figure 1 for each technique in that example. Figure 2 shows the corresponding graph for the Delta technique. Figure 2: Rates of Profits for Delta Technique

In Figures 1 and 2, the rate of profits picked out by the Perron-Frobenius theorem and used to draw the wage-rate of profits curve for the technique lies along the line segment on the real axis on the left in the figure. A lower wage corresponds to a higher traditional rate of profits. Thus, points further to the right on this line segment correspond to a lower wage. A wage of zero leads to the right-most point on this line segment. The highest feasible wage corresponds to left-most point, at a rate of profits of zero, on this segment.

Two non-traditional rates of profits arise for the other two solutions of the characteristic equation. They are plotted to the right on the graphs in Figures 1 and 2. When complex, they are complex conjugates. I thought it of interest that, in Figure 2, they are purely real for two non-overlapping, distinct ranges of feasible levels of the wage.

I draw no practical, applied implications from the non-traditional rates of profits. I just think the graphs are curious.