Why Are There So Many Power Laws in Economics?

Power law distributions are ubiquitous in socioeconomic contexts. While their general properties are well understood, it is often less clear why they regularly appear in empirical data. What are the generative mechanisms leading to power law distributions and why do we so often observe such distributions in socioeconomic contexts? This paper aims to partly fill this gap by discussing two candidate mechanisms, cumulative advantage and random multiplication, that appear regularly, but in variegated forms, in political economy arguments. These mechanisms do not only seem especially relevant for understanding power law distributions in socioeconomic contexts, but can also be captured in simple formal setups. On this basis, we identify core formal properties and explore how these mechanisms can be mapped to real-world problems and processes. In addition, we discuss the relation of power laws and their generative mechanisms to related concepts relevant in heterodox economics, like path dependence, cumulative processes, power asymmetries or non-ergodicity.

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Publication Details

Journal
Review of Political Economy
Published
2026-10-30
DOI
https://doi.org/10.1080/09538259.2026.2745615
Primary Topic
Complex Systems and Time Series Analysis
Type
article
Field-Weighted Citation Impact
0.00

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article

Why Are There So Many Power Laws in Economics?

Paul Banse, Stefan Steinerberger, Jakob Kapeller
Review of Political Economy
Complex Systems and Time Series Analysis
article

Why Are There So Many Power Laws in Economics?

Paul Banse, Stefan Steinerberger, Jakob Kapeller
article en

Abstract

Power law distributions are ubiquitous in socioeconomic contexts. While their general properties are well understood, it is often less clear why they regularly appear in empirical data. What are the generative mechanisms leading to power law distributions and why do we so often observe such distributions in socioeconomic contexts? This paper aims to partly fill this gap by discussing two candidate mechanisms, cumulative advantage and random multiplication, that appear regularly, but in variegated forms, in political economy arguments. These mechanisms do not only seem especially relevant for understanding power law distributions in socioeconomic contexts, but can also be captured in simple formal setups. On this basis, we identify core formal properties and explore how these mechanisms can be mapped to real-world problems and processes. In addition, we discuss the relation of power laws and their generative mechanisms to related concepts relevant in heterodox economics, like path dependence, cumulative processes, power asymmetries or non-ergodicity.

Review of Political Economy
Johannes Kepler University of Linz (AT), University of Bonn (DE), University of Washington (US), University of Duisburg-Essen (DE)
Volkswagen Foundation
Peace, justice, and strong institutions
Openalex Percentile: Top 99%
Complex Systems and Time Series Analysis
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Why Are There So Many Power Laws in Economics? — Paul Banse, Stefan Steinerberger, et al. · Review of Political Economy (2026) | TGRS Research Map | TGRS