On the Size Distribution of Business Firms

Posted: 17 Nov 2009

See all articles by Robert E. Lucas

Robert E. Lucas

affiliation not provided to SSRN

Date Written: 1978


Examines the size distribution of firms at an economy-wide level by allocating productive factors over managers of differing abilities in order to maximize output. A firm is defined as one manager and the capital and labor which that manager controls. To begin, a serious of theories that have been proposed in this area are considered including those of Herbert A. Simon, Jacob Viner, Charles, Bonini, and Yuji Ijiri. The model then developed in this analysis is based on the suggestion of Henry G. Manne. Production technology and managerial technology are considered separately in this model with production technology viewed in terms of labor and capital and managerial technology viewed in terms of variable skill or talent. Further development of the model invokes Gibrat's law. The results of this model show the effect of gross national product per capita on average firm size. Using human capital and hierarchical managements as variables would help to refine this model. (SRD)

Keywords: Firm size, Human capital, Market competition, Allocation models, Resource model, Asset management, Managers, Production factors, Management skills

Suggested Citation

Lucas, Robert E., On the Size Distribution of Business Firms (1978). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1504463

Robert E. Lucas (Contact Author)

affiliation not provided to SSRN

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