TY  - JOUR
AU  - Gabaix,Xavier
TI  - Power Laws in Economics and Finance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14299
PY  - 2008
Y2  - September 2008
UR  - http://www.nber.org/papers/w14299
L1  - http://www.nber.org/papers/w14299.pdf
N1  - Author contact info:
Xavier Gabaix
New York University
Finance Department
Stern School of Business
44 West 4th Street, 9th floor
New York, NY 10012
Tel: 212-998-0257
Fax: 212-995-4233
E-Mail: xgabaix@stern.nyu.edu
AB  - A power law is the form taken by a large number of surprising empirical regularities in economics and finance. This article surveys well-documented empirical power laws concerning income and wealth, the size of cities and firms, stock market returns, trading volume, international trade, and executive pay. It reviews detail-independent theoretical motivations that make sharp predictions concerning the existence and coefficients of power laws, without requiring delicate tuning of model parameters. These theoretical mechanisms include random growth, optimization, and the economics of superstars coupled with extreme value theory. Some of the empirical regularities currently lack an appropriate explanation. This article highlights these open areas for future research.
ER  -