The Beta as a Model for the Distribution of Earnings.

Existing functional forms commonly used to represent the earnings distribution have weak micro-foundations and relatively poor empirical goodness-of-fit. This paper presents an optimizing model of firm behaviour, which predicts the earnings distribution to follow the beta distribution of the second kind, a distribution known to provide a superior fit to empirical data. Copyright 1999 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research