Generalizing Gibrat Reasonable Stochastic Multiplicative Models of Firm Dynamics with Entry and Exit
Multiplicative models of firm dynamics ‘à la Gibrat’ have become a standard reference in industrial organization. However, some unpleasant properties of their implied dynamics – namely, their explosive or implosive behaviour (firm size and number collapsing to zero or increasing indefinitely) - have been given only very little attention. In this paper I investigate using simulations which modifications to the standard multiplicative model of firm dynamics lead to stable (and reasonable) distributions of firm size. I show that in order to obtain stable systems for a wide range of average growth rate, either heteroskedasticity in the growth rates has to be assumed, or entry and exit mechanisms included. In particular I show that combining the broad class of threshold entry mechanisms and the more restricted class of threshold exit mechanisms with overcapacity penalizing all firms (where entry and exit are determined with reference to an exogenously defined total capacity of the market), lead to stable distributions even in the case of growth rate homoskedasticity, given a non-zero minimum threshold for firm size.
|Date of creation:||2003|
|Contact details of provider:|| Postal: Via Real Collegio, 30, 10024 Moncalieri (To)|
Web page: http://www.laboratoriorevelli.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cordoba, Juan, 2001. "Balanced City Growth and Zipf's Law," Working Papers 2002-03, Rice University, Department of Economics.
- Audretsch, D.B. & Klomp, L. & Thurik, A.R., 2002.
"Gibrat's Law: are the services different?,"
ERIM Report Series Research in Management
ERS-2002-04-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- José Fariñas & Lourdes Moreno, 2000. "Firms' Growth, Size and Age: A Nonparametric Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(3), pages 249-265, November.
- Geroski, Paul A & Samiei, Hossein & Urga, Giovanni, 1997.
"Are Differences in Firm Size Transitory or Permanent?,"
CEPR Discussion Papers
1691, C.E.P.R. Discussion Papers.
- G. Urga & P. A. Geroski & S. Lazarova & C. F. Walters, 2003. "Are differences in firm size transitory or permanent?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 47-59.
- Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cca:wplabo:21. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Bert)
If references are entirely missing, you can add them using this form.