Can statistical physics contribute to the science of economics?

Michael H R Stanley, Luís A N Amaral, Sergey V. Buldyrev, Shlomo Havlin, Heiko Leschhorn, Phillipp Maass, Michael A. Salinger, H. Eugene Stanley

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

Abstract

In recent years, a breakthrough in statistical physics has occurred. Simply put, statistical physicists have determined that physical systems which consist of a large number of interacting particles obey universal laws that are independent of the microscopic details. This progress was mainly due to the development of scaling theory. Since economic systems also consist of a large number of interacting units, it is plausible that scaling theory can be applied to economics. To test this possibility we study the dynamics of firm size. This may help to build a more complete characterization of the nature and processes behind firm growth. To date, the study of firm dynamics has primarily focused on whether small firms on average have higher growth rates than large firms. To a lesser extent, attention has been placed on the relationship between firm size and variation in growth rate. Our research goes beyond these questions by looking at the relationship between numerous firm characteristics and the entire distribution of growth rates. Thus, it may provide a better understanding of the mechanisms behind firm dynamics. In contrast to previous studies, this research analyzes data over many time scales, instead of just a single time interval. From a scientific standpoint, this work could be useful because it will affect the formulation of firm modeling - one of the basic building blocks of all economic analysis. In addition, this work will have practical applications. For example, there are Federal policies that are designed to encourage small businesses. While such policies might be justified on grounds other than their contribution to growth, any systematic difference in the growth rates of small and large firms might be relevant for evaluating such policies. Also, there has traditionally been a concern that an excessive amount of economic activity might become concentrated in a small number of firms. A more detailed understanding of the firm growth process will provide evidence for whether such concerns have any scientific foundation.

Original languageEnglish (US)
Pages (from-to)415-425
Number of pages11
JournalFractals
Volume4
Issue number3
DOIs
StatePublished - Sep 1996

ASJC Scopus subject areas

  • Modeling and Simulation
  • Geometry and Topology
  • Applied Mathematics

Fingerprint Dive into the research topics of 'Can statistical physics contribute to the science of economics?'. Together they form a unique fingerprint.

Cite this