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Firms as bundles of discrete resources - towards an explanation of the exponential distribution of firm growth rates

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A robust feature of the corporate growth process is the Laplace, or symmetric exponential, distribution of firm growth rates. In this paper, we sketch out a class of simple theoretical models capable of explaining this empirical regularity. We do not attempt to generalize on where growth opportunities comme from, but rather we focus on how firms build upon growth opportunites. We borrow ideas from the self-organizing criticality literature to explain how the interdependent nature of discrete resources may lead to the triggering off of a series of additions to a firm's resources. In a first formal model we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution. In a second model we include plant and capital as resources and we are able to reproduce a number of stylized facts about firm growth.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2008/R08055.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number r08055.

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Length: 25 pages
Date of creation: Oct 2008
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Handle: RePEc:mse:cesdoc:r08055

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Keywords: Firm growth rates; exponential distribution; hierarchy; growth autocorrelation.;

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