On the Irreconcilability of Pareto and Gibrat Laws

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: If business firms face a multiplicative growth process in which their growth rates are independent from their sizes, then these sizes cannot be distributed according to a stationary Pareto distribution. At the same time , the Laplace distribution of growth rates cannot be easily reconciled with a Pareto distribution of firm sizes. Recent contributions, using formal arguments, seems to contrast these statements. We prove that the proposed formal results are wrong.

Keywords: Firm Growth; Gibrat's Law; Power law distribution; Laplace distribution. (search for similar items in EconPapers)
Date: Written 2007-03-12
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