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Selection, Growth, and the Size Distribution of Firms


  • Erzo G. J. Luttmer


This paper describes an analytically tractable model of balanced growth that is consistent with the observed size distribution of firms. Growth is the result of idiosyncratic firm productivity improvements, selection of successful firms, and imitation by entrants. Selection tends to improve aggregate productivity at a fast rate if entry and imitation are easy. The empirical phenomenon of Zipf's law can be interpreted to mean that entry costs are high or that imitation is difficult, or both. The small size of entrants indicates that imitation must be difficult. A calibration based on U. S. data suggests that about half of output growth can be attributed to selection. But the implied variance of the combined preference and technology shocks is puzzlingly high.

Suggested Citation

  • Erzo G. J. Luttmer, 2007. "Selection, Growth, and the Size Distribution of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1103-1144.
  • Handle: RePEc:oup:qjecon:v:122:y:2007:i:3:p:1103-1144.

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    References listed on IDEAS

    1. Catherine C. Eckel & Philip J. Grossman, 2002. "Sex Differences and Statistical Stereotyping in Attitudes Toward Financial Risk," Monash Economics Working Papers archive-03, Monash University, Department of Economics.
    2. Francine D. Blau & Lawrence M. Kahn, 2006. "The U.S. Gender Pay Gap in the 1990S: Slowing Convergence," ILR Review, Cornell University, ILR School, vol. 60(1), pages 45-66, October.
    3. Miguel A. Costa-Gomes & Georg Weizsäcker, 2008. "Stated Beliefs and Play in Normal-Form Games," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 729-762.
    4. James Andreoni & Lise Vesterlund, 2001. "Which is the Fair Sex? Gender Differences in Altruism," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 293-312.
    5. Eckel, Catherine C. & Grossman, Philip J., 2008. "Differences in the Economic Decisions of Men and Women: Experimental Evidence," Handbook of Experimental Economics Results, Elsevier.
    6. Eckel, Catherine C. & Grossman, Philip J., 2008. "Men, Women and Risk Aversion: Experimental Evidence," Handbook of Experimental Economics Results, Elsevier.
    7. Uri Gneezy & Muriel Niederle & Aldo Rustichini, 2003. "Performance in Competitive Environments: Gender Differences," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1049-1074.
    8. Altonji, Joseph G. & Blank, Rebecca M., 1999. "Race and gender in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 48, pages 3143-3259 Elsevier.
    9. Marianne Bertrand & Kevin F. Hallock, 2001. "The Gender Gap in Top Corporate Jobs," ILR Review, Cornell University, ILR School, vol. 55(1), pages 3-21, October.
    10. Polachek, Solomon William, 1981. "Occupational Self-Selection: A Human Capital Approach to Sex Differences in Occupational Structure," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 60-69, February.
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