The Exponential Age Distribution and the Pareto Firm Size Distribution |
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| Authors: | Alex Coad |
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| Institution: | 1. Evolutionary Economics Group, Max Planck Institute of Economics, Kahlaische Strasse 10, 07745, Jena, Germany
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| Abstract: | Recent work drawing on data for large and small firms has shown a Pareto distribution of firm size. We begin by showing that the firm age distribution is well approximated by an exponential distribution. We then mix a Gibrat-type growth process among incumbents with an exponential distribution of firm’s age, to obtain the empirically-observed Pareto distribution. |
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