Power Laws in Economics: An Introduction
AbstractMany of the insights of economics seem to be qualitative, with many fewer reliable quantitative laws. However a series of power laws in economics do count as true and nontrivial quantitative laws—and they are not only established empirically, but also understood theoretically. I will start by providing several illustrations of empirical power laws having to do with patterns involving cities, firms, and the stock market. I summarize some of the theoretical explanations that have been proposed. I suggest that power laws help us explain many economic phenomena, including aggregate economic fluctuations. I hope to clarify why power laws are so special, and to demonstrate their utility. In conclusion, I list some power-law-related economic enigmas that demand further exploration.
CitationGabaix, Xavier. 2016. "Power Laws in Economics: An Introduction." Journal of Economic Perspectives, 30 (1): 185-206. DOI: 10.1257/jep.30.1.185
- D01 Microeconomic Behavior: Underlying Principles
- R11 Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms