Gibrat's Law
Updated 2026-08-01
INTRODUCTION
English translation pending.
CORE DEFINITION
Formulated by French economist Robert Gibrat as the law of proportional effect. The law holds that the probability distribution of a firm's growth rate is the same regardless of its current size, so growth is a random proportional process. If it holds, the observed concentration of an industry results largely from accumulated random shocks rather than from large firms being systematically more efficient, and firm sizes converge toward a lognormal distribution.
SCAFFOLDING EFFECT
Reduce cognitive load
- Test a moat: ask whether a leader's advantage is structural or merely accumulated luck - Encourage entrants: note that size does not determine growth rate, so small firms are not structurally doomed - Check the fit: verify the law against the size distribution of the specific industry you are studying
Anchor fast decisions
If each period multiplies a firm's size by a random factor drawn from the same distribution, then growth rates carry no information about size. Small random differences compound multiplicatively over many periods, which produces a skewed size distribution without any firm being inherently better. Where economies of scale or cheaper capital exist, the independence assumption breaks and large firms gain a real advantage.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Gibrat's_lawverified
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