Production, depreciation and the size distribution of firms

Authored by Qi Ma, Yongwang Chen, Hui Tong, Zengru Di

Date Published: 2008-05-15

DOI: 10.1016/j.physa.2008.01.064

Sponsors: Chinese National Natural Science Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Many empirical researches indicate that firm size distributions in different industries or countries exhibit some similar characters. Among them the fact that many firm size distributions obey power-law especially for the upper end has been mostly discussed. Here we present an agent-based model to describe the evolution of manufacturing firms. Some basic economic behaviors are taken into account, which are production with decreasing marginal returns, preferential allocation of investments, and stochastic depreciation. The model gives a steady size distribution of firms which obey power-law. The effect of parameters on the power exponent is analyzed. The theoretical results are given based on both the Fokker-Planck equation and the Kesten process. They are well consistent with the numerical results. (c) 2008 Elsevier B.V. All rights reserved.

Tags

econophysics Power-law production and depreciation size distribution of firms