2007/10 LEM Working Paper Series

On the Irreconcilability of Pareto and Gibrat Laws

Giulio Bottazzi
Firm Growth, Gibrat's Law, Power law distribution, Laplace distribution.

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If business firms face a multiplicative growth process in which their growth rates are independent from their sizes, then these sizes cannot be distributed according to a stationary Pareto distribution. At the same time , the Laplace distribution of growth rates cannot be easily reconciled with a Pareto distribution of firm sizes. Recent contributions, using formal arguments, seems to contrast these statements. We prove that the proposed formal results are wrong.

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