Power Laws in Economics: An Introduction

Xavier Gabaix

Journal of Economic Perspectives, 2016, vol. 30, issue 1, 185-206

Abstract: Many of the insights of economics seem to be qualitative, with many fewer reliable quantitative laws. However a series of power laws in economics do count as true and nontrivial quantitative laws—and they are not only established empirically, but also understood theoretically. I will start by providing several illustrations of empirical power laws having to do with patterns involving cities, firms, and the stock market. I summarize some of the theoretical explanations that have been proposed. I suggest that power laws help us explain many economic phenomena, including aggregate economic fluctuations. I hope to clarify why power laws are so special, and to demonstrate their utility. In conclusion, I list some power-law-related economic enigmas that demand further exploration.

JEL-codes: D01 L11 R11 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/jep.30.1.185
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Citations: View citations in EconPapers (151)

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