Journal of Evolutionary Economics

, Volume 25, Issue 3, pp 585–610 | Cite as

Zipf law and the firm size distribution: a critical discussion of popular estimators

Regular Article

Abstract

The upper tail of the firm size distribution is often assumed to follow a Power Law. Several recent papers, using different estimators and different data sets, conclude that the Zipf Law, in particular, provides a good fit, implying that the fraction of firms with size above a given value is inversely proportional to the value itself. In this article we compare the asymptotic and small sample properties of different methods through which this conclusion has been reached. We find that the family of estimators most widely adopted, based on an OLS regression, is in fact unreliable and basically useless for appropriate inference. This finding raises doubts about previously identified Zipf behavior. Based on extensive numerical analysis, we recommend the adoption of the Hill estimator over any other method when individual observations are available.

Keywords

Firm size distribution Hill estimator Power-like distribution Tail estimators Zipf Law 

JEL Classification

L11 C15 C46 D20 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  • Giulio Bottazzi
    • 1
  • Davide Pirino
    • 2
  • Federico Tamagni
    • 1
  1. 1.IE and LEM, Scuola Superiore Sant’AnnaPisaItaly
  2. 2.Scuola Normale SuperiorePisaItaly

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