Does Firm Size Really Follow a Power Law?

32 Pages Posted: 3 Apr 2019

See all articles by Luis Medrano-Adan

Luis Medrano-Adan

Centro Universitario de la Defensa (Zaragoza)

Vicente Salas-Fumás

University of Zaragoza - Department of Business Administration and Organization

Date Written: December 10, 2018

Abstract

This paper gives conditions under which the distribution of firm size will be a power law, when the organization of production is the equilibrium outcome from occupational choices by individuals who vary in entrepreneurial skills. We contend that the distribution of firm size (DFS) in the equilibrium is a convex transformation of the left-truncated distribution of entrepreneurial skills and that, under general assumptions, the probability density function of the DFS will be strictly decreasing and convex. However, the sufficient conditions for the size distribution of firms being a power law are more restrictive. The paper also challenges the commonly-accepted belief that firm size in the US follows a Zipf distribution.

Keywords: Distribution of firm size, power law, occupational choices

JEL Classification: J24, K31, L11, L25, D01, D24, D31

Suggested Citation

Medrano-Adan, Luis and Salas-Fumás, Vicente, Does Firm Size Really Follow a Power Law? (December 10, 2018). Available at SSRN: https://ssrn.com/abstract=3350068 or http://dx.doi.org/10.2139/ssrn.3350068

Luis Medrano-Adan (Contact Author)

Centro Universitario de la Defensa (Zaragoza) ( email )

Carretera de Huesca
Zaragoza, Zaragoza 50090
Spain

Vicente Salas-Fumás

University of Zaragoza - Department of Business Administration and Organization ( email )

Dr. Cerrada 1
5005 Zaragoza
Spain
+34 976 761803 (Phone)

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