Optimal Allocation of Resources in the Production of Human Capital

Abstract

This paper deals with the optimal allocation of resources in the production of human capital; i.e. the stock of knowledge of students has to be maximized subject to a limited budget. The optimal training intensity over time is obtained using optimal control theory. Considering various types of production functions (of human capital), the question of whether resources should be concentrated in early grades or not is investigated. The results are illustrated in special cases where monotonicity results for the training intensity can be obtained. Also provided is an analysis of the problem where the budget is replenishable.

Keywords:

• Allocation of Resources
• Optimal Control
• Human Capital
• Investment
• Education
• Isoperimetric Constraints