?url_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Adc&rft.relation=http%3A%2F%2Feprints.imtlucca.it%2F1265%2F&rft.title=A+Trick+of+the+(Pareto)+Tail&rft.creator=Bee%2C+Marco&rft.creator=Riccaboni%2C+Massimo&rft.creator=Schiavo%2C+Stefano&rft.subject=HB+Economic+Theory&rft.description=Several+economic+phenomena+are+found+to+follow+an+approximate+Pareto+distribution%2C+at+least+in+the+upper+tail.+The+debate+is+well+established+for+the+distribution+of+wealth+and+business+firms%2C+and+has+recently+been+particularly+animated+with+respect+to+city+sizes.+In+this+paper+we+contribute+to+this+stream+of+the+literature+by+showing+that+the+power-law+tail+emerges+upon+aggregation%2C+and+this+holds+true+across+three+different+domains%3A+cities%2C+firms+and+trade+flows.+We+explore+different+mechanisms+that+could+give+rise+to+this+effect%2C+from+mere+sample+size+to+correlation+among+the+number+of+constituent+parts+of+aggregate+entities+and+their+size%2C+to+the+aggregation+rule%2C+and+discuss+their+impact+on+the+Pareto+tail.+Using+multiple+statistical+tests+we+show+that+it+is+impossible+to+prove+the+existence+of+a+genuine+Pareto+tail+for+the+US+city+size+distribution+because+of+the+smallness+of+the+number+of+observations.+Furthermore%2C+the+presence+of+a+positive+power-law+relationship+between+the+number+of+units+(products%2C+establishments)+comprised+in+each+firm+and+their+average+size+is+key+to+explain+why+the+size+distribution+of+business+firms+displays+a+power-law+tail.+Conversely%2C+we+do+not+find+any+Pareto+tail+for+trade+flows.+The+paper+casts+new+light+on+the+mechanisms+through+which+idiosyncratic+shocks+do+not+average+out+upon+aggregation%2C+so+that+individual+shocks+are+not+washed+away+in+economic+aggregates%2C+as+the+central+limit+theorem+would+predict%2C+but+can+even+be+magnified.&rft.date=2012&rft.type=Working+Paper&rft.type=NonPeerReviewed&rft.format=application%2Fpdf&rft.language=en&rft.identifier=http%3A%2F%2Feprints.imtlucca.it%2F1265%2F1%2FBee_Riccaboni_Schiavo_2012.pdf&rft.identifier=++Bee%2C+Marco+and+Riccaboni%2C+Massimo+and+Schiavo%2C+Stefano++A+Trick+of+the+(Pareto)+Tail.++Technical+Report++%236%2F2012%2F2012++++++++++&rft.relation=http%3A%2F%2Fideas.repec.org%2Fp%2Ftrn%2Futwpde%2F1206.html