The Rise and Fall of Business Firms: A Stochastic Framework on Innovation, Creative Destruction and Growth

Description

At the intersection between statistical physics and rigorous econometric analysis, this powerful new framework sheds light on how innovation and competition shape the growth and decline of companies and industries. Analyzing various sources of data including a unique micro level database which collects historic data on the sales of more than 3,000 firms and 50,000 products in 20 countries, the authors introduce and test a model of innovation and proportional growth, which relies on minimal assumptions and accounts for the empirically observed regularities. Through a combination of extensive stochastic simulations and statistical tests, the authors investigate to what extent their simple assumptions are falsified by empirically observable facts. Physicists looking for application of their mathematical and modelling skills to relevant economic problems as well as economists interested in the explorative analysis of extensive data sets and in a physics-orientated way of thinking will find this book a key reference.

S. V. Buldyrev is Professor of Physics at Yeshiva University. His research interests span theoretical and computational statistical physics and its applications to various complex systems, physical chemistry, material science and biological physics. F. Pammolli is Professor of Economics and Management at Politecnico di Milano. He served as the Founding Rector of the IMT School for Advanced Studies and is currently a member of the Investment committee of the European Fund for Strategic Investments at the European Investment Bank in Luxembourg. His research interests span the analysis of a variety of complex industrial and technological systems, with particular reference to pharmaceuticals and the life sciences. M. Riccaboni is Professor of Economics and Director of the Ph.D. Track in Economics, Networks and Business Analytics at the IMT School for Advanced Studies Lucca. His current research focuses on industrial organization, network analysis and the economics of innovation, with particular reference to the life sciences. H. E. Stanley is William Fairfield Warren Distinguished Professor and Director of the Center for Polymer Studies at Boston University. He is one of the founding fathers of econophysics, a pioneer of interdisciplinary science and has made seminal contributions to the field of statistical physics. He is a member of the US National Academy of Sciences and a recipient of numerous awards throughout his career.

'This is a superb and fascinating book. The distribution of firms' growth rates exhibits a large number of regularities, including some that are very hard to explain. The authors are pioneers in that enterprise, combining empirical and theoretical work. This team of economists and physicists provides a model for a future way to do economics.' Xavier Gabaix, Pershing Square Professor of Economics and Finance, Harvard University 'The Rise and Fall of Business Firms offers a lucid reconstruction and extension of the exciting developments that fundamentally reshaped our understanding of how firms grow and evolve, brought to you by the scientists responsible for the key discoveries. A must for anyone interested in the deep laws that govern economic processes.' Albert-Laszlo Barabasi, Robert Gray Dodge Professor of Network Science, Northeastern University 'There is a long tradition of physicists being interested in and contributing to economics. That tradition continues here in The Rise and Fall of Business Firms. The book is based on generalized proportional growth models for the dynamics and stochastics of the growth and decline of business firms. For further studies, the book points out where more detailed specific inter-related complexities (such as among products, markets, and technologies) can be incorporated. The theoretical analysis paired with empirical data provides valuable insight for firms to understand their past trajectory and future choices.' Michael F. Schlesinger, Office of Naval Research