Dynamic Model of Optimal Allocation of an Individual's Wealth

Abstract

Currently, numerous studies have been undertaken to examine the influence of external and internal factors on the process of accumulation of individuals’ savings and also the ratio between the population’s savings and the rate of economic growth. This notwithstanding, economic theory does not have a unanimous point of view on this issue. Moreover, Russian economic literature pays little attention to the issue of activation of investment potential of the population and to quantitative evaluation of its savings. Hence, the issue of optimal allocation of an individuals’ wealth between consumption and savings is essential and can be taken in consideration when using savings for investment. The interest in solving this kind of problems helps fill the gap in the theory researching population’s savings and allows scholars to develop a number of directions for new additional research, in particular, for investigation of mathematical models which formalize economic problems of consumption theory. In the article, the author suggests a dynamic model of optimal allocation of an individual’s wealth with some modifications and also a qualitative analysis of the basic model with the help of the optimal control theory. The results of the research are interpreted from the economic perspective. Recommendations for optimal allocation of an individual’s wealth according to the value of the model parameters are given.