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The variance of firm growth rates: the ''scaling'' puzzle

Sutton, John (2001) The variance of firm growth rates: the ''scaling'' puzzle. Economics of Industry; EI 27, EI/27. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

Certain recently reported statistical regularities relating to the dispersion of firms' growth rates have begun to attract attention among IO economists. These relationships take the form of power law or scaling relationships and this has led to suggestions that the underlying mechanisms which drive these relationships may have some interesting analogies with the mechanisms which drive scaling relationships in other fields. In this paper, I report some new empirical evidence in this area and I put forward a new candidate explanation for the relationships we observe. This candidate explanation does not rely on any correlation mechanisms; rather, it is consistent with the view that the typical firm consists of a number of (approximately) independent businesses. The size distribution of the constituent businesses within firms is modelled by reference to an analogy with the partitions of an integer.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 2001 John Sutton
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: EI/27
Date Deposited: 27 Apr 2007
URL: http://eprints.lse.ac.uk/2318/

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