Financial Technology and the Inequality Gap

New financial information technologies were expected to democratize finance and narrow wealth gaps. I show they can do the opposite. In a noisy-rational expectations general equilibrium model of the stock market, technology works through two distinct frictions: participation and information. Lowering participation frictions broadens entry, improves risk sharing, and reduces wealth and return inequality. Lowering information costs reallocates surplus to informed traders and increases cross-sectional inequality. Broadly shared gains thus require targeting participation frictions; subsidizing information acquisition alone can exacerbate dispersion. The model's distributional predictions are consistent with recent data.