Self-organising skew distributions in an agent-based model with applications to Gibrat's Law

Abstract

Three models for the firm size distribution are implemented using an Agent-Based Modelling (ABM) framework, and a theory explaining the source of a skew firm size distribution in one of the models is proposed. The variable effort model produces a skew distribution of firm sizes, we propose, due to the presence within the model of endogenous birth and proportional growth forces. These forces result from the instantiation within an agent-based model of contradictory microeconomic tendencies, namely the free riding tendency due to Cobb-Douglas income leisure preferences and the increasing returns to scale of the firm production function. All of these elements have a role to play in the resultant generation of a skew firm size distribution.