Optimal knowledge outsourcing model

Every organization controls its investments in the development and maintenance of internal knowledge (IK) as opposed to outsourcing this effort, namely, consuming external knowledge (EK). A number of factors are involved in this decision, such as the IK learning curve, its associated holding cost, value deterioration rate, value of future IK or cost of purchasing EK. This study proposes a dynamic optimal control model for examining the properties of this problem. Optimal control strategies and steady-state conditions are identified for a number of special cases. Some insightful observations are obtained by studying the solution sensitivity to the underlying assumptions.