Optimal Resource Allocation in a Two-Sector Economy with an Integral Functional: Theoretical Analysis and Numerical Experiments

Abstract

We investigate the allocation of resources in a two-sector economic model with a Cobb–Douglas production function for different depreciation rates with an integral functional on a finite time horizon. The problem is reduced to some canonical form by the scaling of phase variables and time. The extremal solution constructed by Pontryagin’s maximum principle is shown to be optimal. For a sufficiently large planning horizon, the optimal control has two or three switch points, contains one singular section, and vanishes on the final section. A transition “calibration” regime is observed between the singular section, where the system moves along a singular ray, and the final section. The maximum-principle boundary-value problem is solved in explicit form and the solution is illustrated with graphs based on numerical calculations.