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The size variance relationship of business firm growth rates

Pammolli, Fabio and Riccaboni, Massimo and Buldyrev, Sergey V. and Ponta, Linda and Stanley, H. Eugene The size variance relationship of business firm growth rates. Proceedings of the National Academy of Sciences, 105 (50). pp. 19595-19600. ISSN 1091-6490 (2008)

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The relationship between the size and the variance of firm growth rates is known to follow an approximate power-law behavior σ(S) ≈ S−β(S) where S is the firm size and β(S) ≈ 0.2 is an exponent that weakly depends on S. Here, we show how a model of proportional growth, which treats firms as classes composed of various numbers of units of variable size, can explain this size-variance dependence. In general, the model predicts that β(S) must exhibit a crossover from β(0) = 0 to β(∞) = 1/2. For a realistic set of parameters, β(S) is approximately constant and can vary from 0.14 to 0.2 depending on the average number of units in the firm. We test the model with a unique industry-specific database in which firm sales are given in terms of the sum of the sales of all their products. We find that the model is consistent with the empirically observed size-variance relationship.

Item Type: Article
Identification Number: 10.1073/pnas.0810478105
Additional Information: © 2008 by The National Academy of Sciences of the USA
Uncontrolled Keywords: preferential attachment; pharmaceutical industry; distributions
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Users 2 not found.
Date Deposited: 30 Jun 2011 14:27
Last Modified: 10 Oct 2013 08:37
URI: http://eprints.imtlucca.it/id/eprint/637

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