Optimal Investment of Resources in Creation of Human Capital: A Control Theoretic Approach

Abstract

Many recent studies on organizational development have suggested that human capital attributes have a strong and direct effect on organizational performance. Thus, a cost-effective optimal human capital development plan can be of utmost importance for a firm to sustain in this competitive environment. Herein, we studied the optimal investment path on human capital under a given budgetary constraint to improve the organizational performance. Cobb-Douglas production functions (of human capital) are used to derive the optimal time path of a firm’s investment by employing optimal control theory. The economic explanations and suggestions of the model solutions are also discussed in detail. We expect the experimental results obtained through the analysis will assist us to recognize the importance of each chosen parameter and their credence.