Truman Bewley, Distinguished Fellow 2012

Truman F. Bewley is the Alfred Cowles Professor of Economics at Yale University, where he has taught since 1983. He previously taught at Harvard and Northwestern Universities. Bewley is an extraordinarily versatile and innovative economist who has made fundamental contributions ranging from mathematical economics and general equilibrium theory to the empirical foundations of macroeconomics. He is a Fellow and past Council Member of the Econometric Society and a Fellow of the American Academy of Arts and Sciences.

Bewley’s early work focuses on mathematical economics and general equilibrium theory. Bewley is mathematically powerful, undaunted by technical difficulties. His 1972 paper in the Journal of Economic Theory establishes conditions for the existence of a competitive equilibrium in models with infinitely many commodities. In his pioneering 1977 paper in the Journal of Economic Theory and in his subsequent 1980, 1983 and 1986 papers, he invented a class of models, now known as the “Bewley models,” in which ex ante identical agents experience heterogeneous shocks in a general equilibrium setting with incomplete markets. He is a master of constructing informative counterexamples. A classic case is his 1981 Econometrica paper on the existence and optimality of Tiebout models showing rigorously the special conditions in which Tiebout equilibria both exist and are Pareto Optimal. He has extended and altered some of Friedman’s insights about the optimal quantity of money and the permanent income model of consumption. More recently he initiated an influential approach to Knightian decision theory, showing how dropping the completeness assumption in Shackle’s framework and adding an inertia assumption can explain inaction and a wide range of behavior that would appear irrational with unique priors.

Long interested in the microeconomic foundations of macroeconomics, Bewley’s work over the last two decades has focused on the wage, employment and pricing policies of firms. His influential 1999 book and related articles, based on interviews with over 300 business executives, labor leaders, unemployment counselors and business consultants in the Northeast of the United States during the recession of the early 1990s, focused on understanding a fundamental puzzle in macroeconomics: why wages are downward rigid during recessions. Bewley concludes that employer’s wage behavior is quite rational given the environment and constraints they face. They are reluctant to cut pay largely because of the anticipated adverse impact on worker morale, productivity and turnover. He is currently engaged in a companion study on pricing behavior based on interviews with over 500 firms.

Bewley marches to his own drummer, pursuing research on economic behavior without regard to its likely reception by the profession. It is fitting that the result has been so many fundamental contributions now recognized by his selection as a Distinguished Fellow of the American Economic Association.