A look at the relationship between industrial dynamics and aggregate fluctuations

Domenico Delli Gatti, Edoardo Gaffeo and Mauro Gallegati

No 803, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: The firmly established evidence of right-skewness of the firmsï¿½ size distribution is generally modelled recurring to some variant of the Gibratï¿½s Law of Proportional Effects. In spite of its empirical success, this approach has been harshly criticized on a theoretical ground due to its lack of economic contents and its unpleasant long-run implications. In this chapter we show that a right-skewed firmsï¿½ size distribution, with its upper tail scaling down as a power law, arises naturally from a simple choice-theoretic model based on financial market imperfections and a wage setting relationship. Our results rest on a multi-agent generalization of the prey-predator model, firstly introduced into economics by Richard Goodwin forty years ago.

Keywords: Firm size; Prey-predator model; Business Fluctuations (search for similar items in EconPapers)
JEL-codes: D92 E32 L11 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (1)

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