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On the Laplace Distribution of Firms Growth Rates

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  • Giulio Bottazzi
  • Angelo Secchi

Abstract

A very robust stylized fact has recently emerged concerning the distribution of growth rates of manufacturing business firms. We briefly review past analysis and present new evidence on this topic from the Italian Manufacturing Industry. We then propose a very simple model that, under rather general assumptions, provides an excellent explanation for the observed regularities. The model is based on a very simple stochastic process describing the random partition of a number of ``business opportunities'' among a population of identical firms. A theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity. Moreover, using simulations, we show that even in a moderately small industry the agreement with asymptotic results is almost complete.

Suggested Citation

  • Giulio Bottazzi & Angelo Secchi, 2002. "On the Laplace Distribution of Firms Growth Rates," LEM Papers Series 2002/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2002/20
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    Cited by:

    1. Bottazzi, Giulio & Secchi, Angelo, 2003. "A stochastic model of firm growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 213-219.
    2. Toke Reichstein & Morten Berg Jensen, 2003. "Analyzing the Distributions of the Stochastic Firm Growth Approach," DRUID Working Papers 03-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    3. Fabio Clementi & Mauro Gallegati, 2005. "Pareto's Law of Income Distribution: Evidence for Grermany, the United Kingdom, and the United States," Microeconomics 0505006, University Library of Munich, Germany.
    4. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.

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