Firm and city growth rates are independent of size, which generates a lognormal size distribution.
Gibrat's 1931 finding. If growth is proportional and random, the size distribution becomes lognormal automatically, which is why firm and city sizes look the way they do without anyone designing it.
In practice
- A firm of 30 and one of 3,000 both grow around 8% in a good year, so the gap widens in absolute terms and holds in proportion.
- A city of 40,000 and one of four million grow at similar rates, which is why the size distribution stays the same shape for a century.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The regularities money obeys