Full text: Pareto Distribution

counterparts in reality ( 1961, p.525 ). The explanation 
is analogous to the well known explanation of the stature 
of adult men as a random variable composed of a great 
number of independent small random variables ; this 
ex^Lains the normal distribution of height. The precise 
identity of these small random variables is, here again, 
not specified and rather speculative. This may perhaps 
explain why this "synchronous" approach has not, so far, 
found much resonance among economists. 
The interest of the alternative approach ( Champernowne or 
Yule ) of explaining the law as a steady state of 
a stochatystic process is that it establishes a relation 
between the stratification found in a cross section 
and the past history which has produced it,and which is 
mapped in the cross section. This is analogous to the 
stratifications in geology and the rings in the trunk of 
a tree. Irregularities or shifts in the empirical 
distributions can according to this view be explained 
by major disturbances of the process in certain points of 
time in the past. 
Concretely, the Pareto distribution has been shown^ 
in the case of a birth and death process model, to depend 
on growth; in an economy which has always been stationary 
it would not exist ( Steindl 1965 ). The Pareto coefficient 
in such models is usually a ratio of growth rates; thus 
in the case of firm size it is a ratio of the growth rate 
of the number of firms to the growth rate of the firms 
themselves ( Steindl 1965). The importance of new entry 
as a factor making for less inequality has also been 
shown, inter alia in the case of wealth ( Steindl 1972).

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