Abstract

http://ssrn.com/abstract=1083962
 
 

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Zipf's Law for Firms: Relevance of Birth and Death Processes


Yannick Malevergne


University of Saint Etienne - Graduate School of Economics and Business Administration (ISEAG); EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Alexander I. Saichev


ETH Zurich - D-MTEC

Didier Sornette


Swiss Finance Institute; ETH Zurich

January 1, 2008


Abstract:     
Zipf's law states that, for most countries, the number of firms with size greater than S is inversely proportional to S. Most explanations start with Gibrat's rule of proportional growth but need to incorporate additional constraints and ingredients introducing deviations from it. We show that combining Gibrat's rule at all firm levels with random processes of firms' births and deaths yield Zipf's law under a "balance" condition between firm growth and their death rate. We predict deviations from Zipf's law under a variety of circumstances, which provides a framework for identifying the possible origin(s) of the many reports of deviations from the pure Zipf's law. Reciprocally, deviations from Zipf's law in a given economy provides a diagnostic, suggesting possible policy corrections.

Number of Pages in PDF File: 27

JEL Classification: G11, G12

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Date posted: January 15, 2008 ; Last revised: April 13, 2010

Suggested Citation

Malevergne, Yannick and Saichev, Alexander I. and Sornette, Didier, Zipf's Law for Firms: Relevance of Birth and Death Processes (January 1, 2008). Available at SSRN: http://ssrn.com/abstract=1083962 or http://dx.doi.org/10.2139/ssrn.1083962

Contact Information

Yannick Malevergne (Contact Author)
University of Saint Etienne - Graduate School of Economics and Business Administration (ISEAG) ( email )
2, Rue Tréfilerie
F-42023 St. Etienne Cedex 2
France
EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )
23 av. Guy de Collongue BP 174
69132 Ecully Cedex
France
HOME PAGE: http://www.em-lyon.com/english/faculty/professors/efc/malevergne/index.aspx
Alexander I. Saichev
ETH Zurich - D-MTEC ( email )
Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland
Didier Sornette
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
ETH Zurich ( email )
Department of Management, Technology and Economics
Scheuchzerstrasse 7
8092 Zurich
Switzerland
41446328917 (Phone)
41446321914 (Fax)
HOME PAGE: http://www.er.ethz.ch/
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