Professor Townsend began his work as a theorist working on general equilibrium models, contract theory, and mechanism design. He is known for his seminal work on costly state verification, the revelation principle, optimal multi-period contracts, the decentralization of economies with private information, models of money with spatially separated agents, and forecasting the forecasts of others. Townsend's recent work focuses on analyzing the role and contributions of financial systems on developing economies by studying applied dynamic general equilibrium models and contract theory.