• MIT Department of Economics

    Robert M. Townsend, Elizabeth & James Killian Professor of Economics

    A theorist, macroeconomist, and development economist, Townsend analyzes the role and impact of economic organization and financial systems through applied general equilibrium models, contract theory and the use of micro data. He is known for his seminal work on costly state verification, the revelation principle, optimal multi-period contracts, decentralization of economies with private information, models of money with spatially separated agents, forecasting the forecasts of others and insurance and credit in developing countries. He is the author of Financial Structure and Economic Organization (1990),The Medieval Village Economy (1993), Households as Corporate Firms (2010) with Krislert SamphantharakFinancial Systems in Developing Economies (2011), Chronicles from the Field (2013) with Sombat Sakuntasathien and Rob Jordan;and numerous professional articles.

Featured Working Papers

  • "Economic Development and the Equilibrium Interaction of Financial Frictions." Benjamin Moll, Robert M. Townsend, Victor Zhorin. NBER Working Paper No. 19618, 2014. ABSTRACT PDF

    This paper argues that different micro financial underpinnings have potentially very different implications at both the macro and the micro level on large cross-country income differences. The authors develop a general equilibrium framework that encompasses different regimes of frictions, and compare the implications of two concrete frictions: limited commitment and moral hazard. The work also presents an economy with different frictions in different regions, and argues that such mixture regimes are different from simple convex combinations of the pure moral hazard and pure limited commitment regimes.

  • "Distinguishing Constraints on Financial Inclusion and Their Impact on GDP, TFP,  and Inequality." Era Dabla-Norris, Yan Ji, Robert M. Townsend and D. Filiz Unsal. NBER Working Paper No. 20821, 2015. ABSTRACT PDF

    We develop a micro-founded general equilibrium model with heterogeneous agents and three dimensions of financial inclusion: access (determined by a participation cost), depth (determined by a borrowing constraint), and intermediation efficiency (determined by a monitoring cost). We find that the economic implications of financial inclusion policies vary with the source of frictions. In partial equilibrium, we show analytically that relaxing each of these constraints separately increases GDP. However, when constraints are relaxed jointly, the impacts on the intensive margin (increasing output per entrepreneur with access to credit) are amplified, while the impacts on the extensive margin (promoting credit access) are dampened. In general equilibrium, we discipline the model with firm-level data from six countries and quantitatively evaluate the policy impacts. Multiple frictions are necessary to match the country-specific variables, e.g., credit access ratio, interest rate spread, and non-performing loans. A TFP decomposition finds that most of the productivity gains are captured by a between-regime shifting effect, whereby talented entrepreneurs obtain credit and expand their businesses. In terms of inequality and welfare, reducing the participation cost benefits talented-but-poor agents the most, while relaxing the borrowing constraint or intermediation cost is more beneficial for talented-and-wealthy agents.

Featured Publication

  • "Chronicles from the Field: The Townsend Thai Project." Robert M. Townsend, Sombat Sakunthasathien, and Rob Jordan. Boston, MA: MIT Press, April 2013. LINK

    Running since 1997, the Townsend Thai Project has tracked millions of observations about the economic activities of households and institutions in Thailand. The authors offer an account of the design and implementation of the survey and tell the story not only of the origins and operations of the project but also of the challenges and rewards that come from a search to understand the process of a country's economic development.The book explains the technical details of data collection and survey instruments but emphasizes the human side of the project. 


  • Townsend Thai Project

    The Townsend Thai Project brings together one of the most detailed and longest running panel datasets in the developing world and archived secondary data for researchers at universities around the world.

  • Mapping Financial Institutions in Emerging Markets

    This project utilizes data mining techniques, GIS, and an interactive database to evaluate the impact of technology on retail banking and consumer finance in Thailand. This public database provides access to valuable consumer information and offers visual representation of patterns in economic conditions,commercial and government bank locations,education, labor, and health.

  • Consortium on Financial Systems and Poverty

    The Consortium oversees the development of a growing body of research that seeks to put financial services for the poor, with an emphasis on the impact of savings, second generation banking, and policy, on a firm empirical and theoretical foundation and serves as a reliable guide to effective action. It is composed of top-tier researchers across a variety of institutions who work to understand the impact of financial products, the macro and micro policies that are associated with financial access, and technological innovations in financial service delivery.

Latest News

"This Time There Was No Keynes"
Economic Principals
October 11, 2015

Journalist David Warsh reviews former Federal Reserve Chairman Ben Bernanke's latest book and refers to Townsend's 1979 paper, "Optimal Contracts and Competitive Markets with Costly State Verification," in his discussion.

Becker Friedman Institute Conference Honors Townsend's Work
Keynote Addresses by Thomas J. Sargent, Neil Wallace
June 12, 2015

Former students of Robert M. Townsend honored his influence and teaching with a conference in Chicago last month titled “Theory & Measurement: Financial Systems and Economic Development.” Reflecting both Townsend’s scholarly impact and collegial style, the informal conference was notable for the high quality of the scholarship presented, a keynote address by Thomas J. Sargent, winner of the 2011 Nobel Prize in Economic Sciences, and a commemorative lunch talk by Neil Wallace, Professor of Economics at Pennsylvania State University and Townsend’s own thesis advisor.