Does Firm Size Really Follow a Power Law?

This paper gives conditions under which the distribution of firm size will be a power law, when the organization of production is the equilibrium outcome from occupational choices by individuals who vary in entrepreneurial skills. We contend that the distribution of firm size (DFS) in the equilibrium is a convex transformation of the left-truncated distribution of entrepreneurial skills and that, under general assumptions, the probability density function of the DFS will be strictly decreasing and convex. However, the sufficient conditions for the size distribution of firms being a power law are more restrictive. The paper also challenges the commonly-accepted belief that firm size in the US follows a Zipf distribution