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  5. Growth and Redistribution: The Hedging Perspective

American Economic Review: Insights

ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)

Growth and Redistribution: The Hedging Perspective

  • Larry Samuelson
  • Jakub Steiner
American Economic Review: Insights (Forthcoming)

Abstract

We investigate the impact of wealth redistribution on economic growth, building on Kelly’s (1956) optimal investment portfolio theory. A growth optimal policy redistributes wealth from ’lucky’ overperforming individuals to underperforming ones, minimizing the systematic component of this redistribution in a myopic fashion. That is, the optimal policy minimizes the discrepancy between endowments and outcomes, counterfactually taking outcomes as independent of endowments. The myopia in this result follows from a decoupling argument that allows us to model the planner as independently choosing a growth-maximizing policy and a pattern of wealth circulation.

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