A look at the relationship between industrial dynamics and aggregate fluctuations

Domenico Delli Gatti (), Edoardo Gaffeo () and Mauro Gallegati ()

No 803, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: The firmly established evidence of right-skewness of the firms’ size distribution is generally modelled recurring to some variant of the Gibrat’s Law of Proportional Effects. In spite of its empirical success, this approach has been harshly criticized on a theoretical ground due to its lack of economic contents and its unpleasant long-run implications. In this chapter we show that a right-skewed firms’ size distribution, with its upper tail scaling down as a power law, arises naturally from a simple choice-theoretic model based on financial market imperfections and a wage setting relationship. Our results rest on a multi-agent generalization of the prey-predator model, firstly introduced into economics by Richard Goodwin forty years ago.

Keywords: Firm size; Prey-predator model; Business Fluctuations (search for similar items in EconPapers)
JEL-codes: L11 D92 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:trn:utwpde:0803

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