CAPITALISTS,WORKERS AND SOCIAL SECURITY

This paper elaborates an exogenous growth model that nests overlapping generations of workers who save for life cycle reasons with dynastic agents who save for bequest reasons (‘capitalists’). The model overcomes Marglin's objection that the overlapping generations framework requires special assumptions about technology, and it also provides a natural environment to revisit Samuelson's analysis of lump‐sum transfers between generations. The ability of a benevolent planner to improve workers' welfare is severely restricted by the control capitalists exercise over the accumulation process. Prefunding social security assumes renewed significance because it overcomes this restriction.