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Zipf's law and maximum sustainable growth

  • Malevergne, Y.
  • Saichev, A.
  • Sornette, D.

Zipf's law states that the number of firms with size greater than S is inversely proportional to S. Most explanations start with Gibrat's rule of proportional growth but require additional constraints. We show that Gibrat's rule, at all firm levels, yields Zipf's law under a balance condition between the effective growth rate of incumbent firms (which includes their possible demise) and the growth rate of investments in entrant firms. Under the additional assumption that firms do not consume more resources than available, we show that Zipf's law is the signature that firms grow at the maximum reachable long-term rate.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 6 ()
Pages: 1195-1212

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:6:p:1195-1212
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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