The 'Scaling Puzzle' of Firm Growth from an Individual Agent Perspective

Rob Axtell
The Brookings Institution
Washington, DC USA 20036

The anomalous scaling of firm growth rate variance with size was first detected in U.S. data by Stanley et al. [1996] and confirmed for Japanese data by Sutton [2002]. Competing explanations all take an 'industry perspective,' positing models involving the partially correlated fluctuations of multi-industry firms. Here we describe a model in which purposive decisions by individuals endogenously leads to firm growth rate fluctuations that scale in accord with the empirical data. We show that this result depends on two little understood aspects of human interaction, (1) namely the partially asynchrounous, concurrent nature of such interactions, and (2) the topology of agent-firm communication. The latter is partially explicable in terms of the model, but the former seems difficult to anlayze in general.