April 25 (Bloomberg) -- Susan Athey, the most influential U.S. economist under 40, made her mark by developing techniques that help gauge how consumers, companies and investors respond to uncertainty and changing circumstances.

The Harvard University professor, the first woman to win the American Economic Association's John Bates Clark medal, has used her research to help Canada make more money from timber sales. She's also argued that the Federal Reserve should adopt an inflation target.

Athey ``is doing profound work in areas that are foundational,'' said Lawrence Summers, a Harvard professor and former Treasury secretary who helped recruit Athey to Harvard when he was president of the Cambridge, Massachusetts, university. Her work ``will enable economists to relax straitjacket assumptions about the diversity of firms' and consumers' behavior.''

In winning the Clark medal, the 36-year-old Athey joined a group that includes Summers, 11 Nobel Prize winners and two White House chief economists: Martin Feldstein and Joseph Stiglitz.

Athey, a Boston native, has a bachelor's degree from Duke University in Durham, North Carolina, and a Ph.D. from the Stanford University Graduate School of Business in California. Her husband, Guido Imbens, is also a Harvard economics professor.

Stanford and MIT

Before Athey came to Harvard last year, she taught economics at Stanford from 2001 to 2006 and at the Massachusetts Institute of Technology in Cambridge from 1997 to 2001. In 2001, she won the Elaine Bennett research prize, given biennially by the AEA to the nation's best young female economist.

Much of Athey's work has focused on ``information asymmetries,'' where one party in a transaction knows something that the others don't, said John Roberts, a professor at Stanford's Graduate School of Business who advised Athey on her 1995 doctoral dissertation.

A case in point: auctions, an area Athey has studied extensively and one in which only individual bidders know how much they'll pay.

Athey's research showed that the U.S. Forest Service lost money by selling off timberland through open auction rather than sealed bids. She also helped Canada devise a system for auctioning its timber at prices more reflective of the actual market.

`An Exciting Project'

``That was an exciting project,'' she said in an interview, although she expressed disappointment that it didn't completely defuse a trade dispute between the U.S. and Canada over charges the Canadians were illegally subsidizing timber sales.

In 2003, she co-wrote a paper for the Fed Bank of Minneapolis that argued in favor of a cap on inflation to limit the discretion of the central bank in carrying out monetary policy.

The paper provided a ``theoretical rationale'' for the inflation-targeting framework advocated by Ben S. Bernanke and Frederic Mishkin, wrote Athey and fellow authors Andrew Atkeson, a professor at the University of California at Los Angeles, and Patrick Kehoe, a professor at the University of Minnesota.

Bernanke became the Fed chairman last year, when Mishkin joined its board of governors. They've described their framework as one of ``constrained discretion,'' which means the Fed has the ability to manipulate interest rates as it sees fit provided it keeps inflation within a certain band.

Bernanke a year ago initiated a study into how the Fed communicates its policy objectives, including whether it should establish an inflation target. The study, led by Vice Chairman Donald Kohn, has yet to conclude.

``While we believe our results are important for central banks to consider, it's applied theory,'' Athey cautioned in the interview. ``If I were advising policy makers, I would tell them to consider our results along with other factors.''

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net

Last Updated: April 25, 2007 00:05 EDT