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A Generalized Preferential Attachment Model for Business Firms Growth Rates: II. Mathematical Treatment

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  • Buldyrev, Sergey V.
  • Pammolli, Fabio
  • Riccaboni, Massimo
  • Yamasaki, Kazuko
  • Fu, Dongfeng
  • Matia, Kaushik
  • Stanley, H. Eugene

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15980.

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Date of creation: 31 Aug 2006
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Publication status: Published in The European Physical Journal B 2.57(2007): pp. 131-138
Handle: RePEc:pra:mprapa:15980

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Keywords: firm growth; size distribution; Gibrat law; Zipf law;

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  1. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
  2. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  3. De Fabritiis, G. & Pammolli, F. & Riccaboni, M., 2003. "On size and growth of business firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 38-44.
  4. Yamasaki, Kazuko & Matia, Kaushik & Buldyrev, Sergey V. & Fu, Dongfeng & Pammolli, Fabio & Riccaboni, Massimo & Stanley, H. Eugene, 2004. "Preferential attachment and growth dynamics in complex systems," MPRA Paper 15908, University Library of Munich, Germany, revised 06 Feb 2006.
  5. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70, pages 556.
  6. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Papers cond-mat/9702082, arXiv.org.
  7. Buldyrev, S.V & Dokholyan, N.V & Erramilli, S & Hong, M & Kim, J.Y & Malescio, G & Stanley, H.E, 2003. "Hierarchy in social organization," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 330(3), pages 653-659.
  8. S. V. Buldyrev & L. A. N. Amaral & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: II. Modeling of company growth," Papers cond-mat/9702085, arXiv.org.
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