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A generalized preferential attachment model for business firms growth rates

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  • S. V. Buldyrev

    ()

  • F. Pammolli
  • M. Riccaboni
  • K. Yamasaki
  • D.-F. Fu
  • K. Matia
  • H. E. Stanley

Abstract

We present a preferential attachment growth model to obtain the distribution P(K) of number of units K in the classes which may represent business firms or other socio-economic entities. We found that P(K) is described in its central part by a power law with an exponent ϕ=2+b/(1-b) which depends on the probability of entry of new classes, b. In a particular problem of city population this distribution is equivalent to the well known Zipf law. In the absence of the new classes entry, the distribution P(K) is exponential. Using analytical form of P(K) and assuming proportional growth for units, we derive P(g), the distribution of business firm growth rates. The model predicts that P(g) has a Laplacian cusp in the central part and asymptotic power-law tails with an exponent ζ=3. We test the analytical expressions derived using heuristic arguments by simulations. The model might also explain the size-variance relationship of the firm growth rates. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

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Bibliographic Info

Article provided by Springer in its journal The European Physical Journal B.

Volume (Year): 57 (2007)
Issue (Month): 2 (05)
Pages: 131-138

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Handle: RePEc:spr:eurphb:v:57:y:2007:i:2:p:131-138

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Web page: http://www.springer.com/economics/journal/10051

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Keywords: 89.75.Fb Structures and organization in complex systems; 89.65.Gh Economics; econophysics; financial markets; business and management;

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Cited by:
  1. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
  2. Kaldasch, Joachim, 2012. "Evolutionary Model of the Personal Income Distribution," MPRA Paper 37865, University Library of Munich, Germany.
  3. Wagner, Friedrich & Milaković, Mishael & Alfarano, Simone, 2010. "Firm profitability and the network of organizational capabilities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4769-4775.
  4. ARATA Yoshiyuki, 2014. "Firm Growth Dynamics: The importance of large jumps," Discussion papers 14033, Research Institute of Economy, Trade and Industry (RIETI).
  5. Alfarano, Simone & Milakovic, Mishael, 2008. "Does classical competition explain the statistical features of firm growth?," Economics Letters, Elsevier, vol. 101(3), pages 272-274, December.
  6. Yuichi Ikeda & Hideaki Aoyama & Hiroshi Iyetomi & Yoshi Fujiwara & Wataru Souma, 2008. "Correlated performance of firms in a transaction network," Journal of Economic Interaction and Coordination, Springer, vol. 3(1), pages 73-80, June.

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