Size distributions reconsidered

Christian Schluter (1) , Mark Trede (2)

1 AMSE - Aix-Marseille Sciences Economiques
2 WWU - Westfälische Wilhelms-Universität Münster = University of Münster

We consider tests of the hypothesis that the tail of size distributions decays faster than any power function. These are based on a single parameter that emerges from the Fisher–Tippett limit theorem, and discriminate between leading laws considered in the literature without requiring fully parametric models/specifications. We study the proposed tests taking into account the higher order regular variation of the size distribution that can lead to catastrophic distortions. The theoretical bias corrections realign successfully nominal and empirical test behavior, and inform a sensitivity analysis for practical work. The methods are used in an examination of the size distribution of cities and firms.

Mots clés: regular variation; power law; Extreme value index; size distribution; tail behavior

Domaines: Economies et finances; Économie et finance quantitative [q-fin]

Christian Schluter, Mark Trede. Size distributions reconsidered. Econometric Reviews, 2019, 38 (6), pp.695-710. ⟨10.1080/07474938.2017.1417732⟩. ⟨hal-01994353⟩