The effects of investing social security funds in the stock market when fixed costs prevent some households from holding stocks

With fixed costs of participating in the stock marker, consumers with high income will participate in the stock marker, bur consumers with lower income will not participate. If a fully funded defined-contribution Social Security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save bur do not participate in the stock marker will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general-equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita.