Optimal Control in the Resource Allocation Problem for a Two-Sector Economy with a CES Production Function

Abstract

We consider the resource allocation problem in a two-sector economy with a Constant Elasticity of Substitution (CES) production function on a given sufficiently long finite planning horizon. The performance criterion being optimized is one of the phase coordinates at the terminal time. The scalar control u satisfies the geometrical constraint u ∈ [0, 1]. The optimal control contains a singular section. Analyzing the Pontryagin maximum principle boundary-value problem we find the extremal triple and prove its optimality using a special representation of the functional increment (the theorem of sufficient conditions of optimality in terms of maximum-principle constructs). The solution is constructed with the aid of a Lambert special function y = W(x), that solves the equation ye^y= x. The optimal control consists of three sections: the initial section that involves motion toward the singular ray L_sng = {x₁ = x₂ > 0} , the singular section that involves motion along the singular ray, and terminal section that involves motion under zero control. When the initial state is on the singular ray, the optimal control consists of two sections — singular and terminal. The article is related to a number of the authors’ publications using other production function.