Firm size distribution under horizontal and vertical innovation
AbstractThis paper studies the firm size distribution arising from an endogenous growth model of quality ladders with expanding variety. The probability distribution function of a given cohort is a Poisson distribution that converges asymptotically to a normal of log size. However, due to firm entry propelled by horizontal R&D, the total distribution—i.e., when the entire population of firms is considered—is a mixture of overlapping Poisson distributions which is systematically right skewed and exhibits a fatter upper tail than the normal distribution of log size. Our theoretical results qualitatively match the empirical evidence found both for the cohort and the total distribution, and which has been presented as a challenge for theory to explain. Moreover, by obtaining a total distribution with a gradually increasing average over a long time span, the model is able to address complementary empirical evidence that points to a total distribution subtly evolving over time. Copyright Springer-Verlag 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Evolutionary Economics.
Volume (Year): 23 (2013)
Issue (Month): 1 (January)
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Web page: http://link.springer.de/link/service/journals/00191/index.htm
Find related papers by JEL classification:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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