Townsend received his B.A. from Duke University in 1970 and Ph.D. from the University of Minnesota in 1975. He began teaching at Carnegie Mellon University in 1975, and became a Professor at the University of Chicago in 1985 where he stayed full time until moving to MIT in 2008. From 1987 to 1989 Townsend was also editor of the Journal of Political Economy.

In addition to his professorships, Townsend is the Principal Investigator and Project Director of the Enterprise Initiative, funded by the John Templeton Foundation, and the Principle Investigator of the Consortium for Financial Services and Poverty, funded by the Bill and Melinda Gates Foundation. Additionally, he is a consultant for numerous institutions, including the Federal Reserve Bank of Chicago, the World Bank, and Banco de España.

Townsend is a fellow of the American Academy of Arts and Sciences and of The Econometric Society, which awarded him the Frisch Medal in 1998 for his work on village India.

Townsend began his work as a theorist in general equilibrium models and contract theory/mechanism design, but is known primarily for his work on revelation principle, costly state verification, optimal multi-period contracts, decentralization of economies with private information, models of money with spatially separated agents, and forecasting the forecasts of others. His contributions in econometrics include the study of risk and insurance in developing countries.

Since 1997, Townsend's Thai Project has undertaken large scale village surveys in Thailand to analyze the interaction between household decisions and community behavior at the level of families, villages, regions, and the nation. The Townsend Thai study was the first of its kind and has been the stepping stone for many other applied and theoretical projects in economic development and contract theory.

• (with Krislert Samphantharak) Households as Corporate Firms: An Analysis of Household Finance Using Integrated Household Surveys and Corporate Financial Accounting (Cambridge University Press, 2010). ISBN 0-52-119582-9.
• Financial Systems in Developing Economies: Growth, Inequality, Poverty and Policy Evaluation in Thailand (Oxford University Press, 2008). ISBN 0-19-953323-7.
• The Medieval Village Economy:A Study of the Pareto Mapping in General Equilibrium Models (Princeton University Press, 1993). ISBN 0-691-04270-5.
• Financial Structure and Economic Organization: Key Elements and Patterns in Theory and History (Basil Blackwell, 1990). ISBN 1-55786-039-4.

Other papers and manuscripts