Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89411
Authors: 
Bottazzi, Giulio
Year of Publication: 
2007
Series/Report no.: 
LEM Working Paper Series 2007/11
Abstract: 
Since the seminal work of Pareto, many empirical analyses suggested that the distribution of firms size is characterized by an asymptotic power like behavior. At the same time, recent investigations show that the distribution of annual growth rates of business firms displays a remarkable double-exponential shape. A recent letter propose a possible connection between these two empirical regularities. By assuming a bivariate Marshall-Olkin power-like distribution for the size of firms in subsequent time steps, and performing a qualitative asymptotic analysis, it is suggested that the implied growth rates distribution takes a Laplace shape. By performing a complete analytical investigation, I show that this statement is not correct. The implied distribution does in general possess a non-continuous component and becomes degenerate when perfect correlation is assumed between size levels at different time steps. Essentially, the approach is faulty as it treats firm size levels as stationary stochastic variables and neglects the integrated nature of the growth process.
Subjects: 
Firm Growth
Size distribution
Power law
Laplace distribution
JEL: 
C16
D21
D30
Document Type: 
Working Paper

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