Capital Accumulation, Welfare, and the Emergence of Pension-Fund Activism

This paper presents an overlapping-generations model with altruistic consumers, in which pension funds, by holding a significant share of capital assets, produce noncompetitive behavior. We study the consequences of such behavior for capital accumulation and welfare in the long run when subsidies are associated with contributions to pension funds. If bequests are operative and the subsidy rate is not too high, the capital stock increases with the introduction of pension funds, and this increases long-run utility. If bequests are not operative without pension funds, the rise in long-run welfare is no longer guaranteed, even if the subsidy rate is low.