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Firms as Bundles of Discrete Resources - Towards an Explanation of the Exponential Distribution of Firm Growth Rates

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  • Alex Coad

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Max Planck Institute of Economics - Evolutionary Economics Group)

Abstract

A robust feature of the corporate growth process is the Laplace, or symmetric exponential, distribution of firm growth rates. In this paper, we sketch out a class of simple theoretical models capable of explaining this empirical regularity. We do not attempt to generalize on where growth opportunities comme from, but rather we focus on how firms build upon growth opportunites. We borrow ideas from the self-organizing criticality literature to explain how the interdependent nature of discrete resources may lead to the triggering off of a series of additions to a firm's resources. In a first formal model we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution. In a second model we include plant and capital as resources and we are able to reproduce a number of stylized facts about firm growth.

Suggested Citation

  • Alex Coad, 2008. "Firms as Bundles of Discrete Resources - Towards an Explanation of the Exponential Distribution of Firm Growth Rates," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00331282, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00331282
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00331282
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    Cited by:

    1. Alex Coad & Sven-Olov Daunfeldt & Daniel Halvarsson, 2018. "Bursting into life: firm growth and growth persistence by age," Small Business Economics, Springer, vol. 50(1), pages 55-75, January.

    More about this item

    Keywords

    growth autocorrelation; Firm growth rates; exponential distribution; hierarchy; growth autocorrelation.; Croissance des firmes; distribution exponentielle; hiérarchie.;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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