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Power Law Distribution of the Frequency of Demises of U.S Firms

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  • William Cook
  • Paul Ormerod

Abstract

Both theoretical and applied economics have a great deal to say about many aspects of the firm, but the literature on the extinctions, or demises, of firms is very sparse. We use a publicly available data base covering some 6 million firms in the US and show that the underlying statistical distribution which characterises the frequency of firm demises - the disappearances of firms as autonomous entities - is closely approximated by a power law. The exponent of the power law is, intriguingly, close to that reported in the literature on the extinction of biological species.

Suggested Citation

  • William Cook & Paul Ormerod, 2002. "Power Law Distribution of the Frequency of Demises of U.S Firms," Papers cond-mat/0212186, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0212186
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Rational short-termism
      by chris dillow in Stumbling and Mumbling on 2013-03-06 20:23:55

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    Cited by:

    1. Wright, Ian, 2005. "The social architecture of capitalism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 589-620.
    2. Nick Forster, 2010. "Exposing the Contradictory Claims, Myths and Illusions of the “Secrets of Business Success and Company Longevity†Genre," Vision, , vol. 14(3), pages 141-161, July.
    3. Coad, Alex, 2010. "Investigating the exponential age distribution of firms," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-30.
    4. Camila C.S. Caiado & Paul Ormerod, 2012. "The structure of economic connections between industries: non-scaling behaviour," International Journal of Complexity in Leadership and Management, Inderscience Enterprises Ltd, vol. 2(1/2), pages 39-51.
    5. Wright, Ian, 2009. "Implicit Microfoundations for Macroeconomics," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-27.
    6. Lavička, H. & Lin, L. & Novotný, J., 2010. "Employment, Production and Consumption model: Patterns of phase transitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1708-1720.
    7. Bridget Rosewell & Paul Ormerod, 2004. "How much can firms know?," Computing in Economics and Finance 2004 44, Society for Computational Economics.
    8. Guilmi, Corrado Di & Gallegati, Mauro & Ormerod, Paul, 2004. "Scaling invariant distributions of firms’ exit in OECD countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 334(1), pages 267-273.
    9. Kočišová, J. & Horváth, D. & Brutovský, B., 2009. "The efficiency of individual optimization in the conditions of competitive growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(17), pages 3585-3592.

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