A new method for measuring tail exponents of firm size distributions

The authors propose a new method for estimating the power-law exponents of firm size variables. Their focus is on how to empirically identify a range in which a firm size variable follows a power-law distribution. On the one hand, as is well known a firm size variable follows a power-law distributio...

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Bibliographic Details
Published inEconomics. The open-access, open-assessment e-journal Vol. 5; no. 20; pp. 1 - 20
Main Authors Mizuno, Takayuki, Ishikawa, Atushi, Fujimoto, Shouji, Watanabe, Tsutomu
Format Journal Article
LanguageEnglish
Published Berlin Kiel Institute for the World Economy 07.12.2011
Walter de Gruyter GmbH
SeriesEconomics - The Open-Access, Open-Assessment E-Journal
Subjects
Distribution
econophysics
Finite element analysis
finite size effect
firm size variables
Fixed assets
Hypotheses
Normal distribution
Personal income
Power
power-law distributions
power-law exponents
Random variables
Size
Studies
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Summary:The authors propose a new method for estimating the power-law exponents of firm size variables. Their focus is on how to empirically identify a range in which a firm size variable follows a power-law distribution. On the one hand, as is well known a firm size variable follows a power-law distribution only beyond some threshold. On the other hand, in almost all empirical exercises, the right end part of a distribution deviates from a power-law due to finite size effects. The authors modify the method proposed by Malevergne et al. (2011). In this way they can identify both the lower and the upper thresholds and then estimate the power-law exponent using observations only in the range defined by the two thresholds. They apply this new method to various firm size variables, including annual sales, the number of workers, and tangible fixed assets for firms in more than thirty countries.
ISSN:1864-6042
1864-6042