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.
Townsend, who is currently the Elizabeth & James Killian Professor of Economics at Massachusetts Institute of Technology, holds a visiting post as a Distinguished Research Fellow to the Becker Friedman Institute. He has long focused on understanding economic and financial systems, both in developing economies, and in developed economies, comparing them across regions and countries. A hallmark of his work is merging rigorous data collection and analysis with strong theoretical underpinnings.
The conference showcased the diaspora of dozens of Townsend’s students who attended the conference and presented papers influenced by Townsend’s work. The first day featured papers on the importance of careful measurement, within and across the United States and, in other presentations, across countries. It was followed by a discussion of innovative theories using the mechanism design approach. The presenters examined methods for determining the optimal allocation of bank executive compensation, and in a separate paper, government bailouts when there is limited commitment. Additional papers combined both theory and data in the same setting, while others emphasized the importance of correct specifications in models that deal with skill-bundling and human capital.
Sargent, the William R. Berkley Professor of Economics and Business at New York University and an early mentor of Townsend’s while both were at the University of Minnesota, capped the evening with a keynote address. Sargent highlighted his work that maps a history of the United States’ implied debt limits and Congress’s role in establishing more formal limits. The lecture, Sargent quipped, was “not a Rob Townsend talk” because it did not include theory and only a bit of data. However, Sargent recalled working (and running) with Townsend in his early days at the University of Minnesota and noted, “Seeing the work that Rob was doing, it was clear there was going to be a new economics.”
Day two of the conference featured presentations by both current and former students of Townsend’s. The discussion focused on contract theory and implications for data. Topics included household risk management, commitment problems, social investments and inequality, structural theory and empirical evidence on lending in developing countries, and misallocation of resources that result from the non-exclusivity of lender competition for customers.
Neil Wallace gave the day’s featured address on monetary policy in heterogeneous-agent and general monetary economies. Wallace explored the ideal ways to balance the competing goals of improving risk-sharing and enhancing returns. Wallace’s talk, which he presented at the Becker Friedman Institute, accompanied a pizza lunch; organizers noted this was not due to budgetary constraints but rather paid homage to the many meaningful conversations students had with Townsend over the same meal. Dinner at the end of the day was Thai food—a nod to Townsend’s decades-long study of informal financial networks and how they influence economic growth in Thailand.
Townsend expressed his gratitude to the organizers and presenters and admitted that he had resisted the idea of the conference for a while. “I said ‘no’ several times, but when I really turned the corner was looking at the program and seeing what was going to happen...The enormous high quality of the papers and the interaction has really been gratifying and reinforcing for me. It’s all about the research."