Eco Meets Econ

Students In Classroom

Paul FerraRo, PhD
Bloomberg Distinguished Professor

Paul Ferraro, the Carey Business School’s new Bloomberg Distinguished Professor, examines environmental issues through the lens of behavioral economics.

As an undergraduate biology major at Duke University, Paul Ferraro hated economics, the so-called dismal science, especially after taking one econ class and rating it a “shnoozer.”

“It just didn’t resonate with me. I couldn’t see how it could solve any problems that were relevant for me,” he recalls. “We spent hours covering the supply and demand of bushels of corn.”

A few years later in graduate school, commonly a hothouse for future academicians, Ferraro the doctoral student decided no way would he ever join the ranks of professors – those “exhausted and harried” souls who “seemed remote from real problems” (as he describes the view he held at that time).

So then: Say hello to economics professor Paul Ferraro.

Last year Ferraro joined the Carey Business School faculty as its second Bloomberg Distinguished Professor, following organization theory expert Kathleen Sutcliffe. Johns Hopkins University launched the professorships in 2014 with a $350 million gift from JHU alumnus and former New York mayor Michael Bloomberg. The intention is to promote interdisciplinary scholarship across the university. Through last December, JHU had appointed 18 Bloomberg Distinguished Professors, with the goal of 50 by 2019.

The turning point in Ferraro’s career came when he was a Duke graduate student doing ecological studies in Madagascar. By chance he ran into an economics professor, also from Duke, who told Ferraro he should look at environmental issues not as ecological questions but as human behavior problems that could best be explained and resolved within the context of economics. Ferraro returned to Duke and studied economics, at first mainly to prove the professor wrong. But in time he became a convert, eventually earning a PhD in economics from Cornell University.

Ferraro arrived at Johns Hopkins from Georgia State University and was appointed to both Carey and the Whiting School of Engineering. He taught a course on field experiments last fall at Carey, and this spring he spent a month as a Humanitas Visiting Professor in Sustainability Studies at the University of Cambridge. He also serves as co-director of the Center for Behavioral and Experimental Agri-Environmental Research (CBEAR), based jointly at Johns Hopkins and the University of Delaware. Funded by the United States Department of Agriculture’s Economic Research Service, CBEAR cultivates evidence-based studies with the aim of solving some of the most pressing agricultural and environmental challenges across the U.S.

Recently, Ferraro sat down with Carey Business to answer some questions about his new role at Johns Hopkins, his work with CBEAR, and the surprising insights to be gained from the actually-not-so-dismal science of economics.

AS A BLOOMBERG PROFESSOR, HOW DO YOU SPLIT YOUR TIME BETWEEN CAREY AND WHITING?

I’m tenured at both, so I’m officially 50 percent of the time at each school. Right now it’s a lot of faculty meetings and committees, and pretty hectic. This professorship is a new thing for Hopkins. We’ve had courtesy appointments of professors across divisions, but rarely people with joint appointments as full-time faculty at different schools. It’s a learning experience for everybody involved – for the Bloomberg professors as we navigate being in two different divisions, and for each division as they get used to having a senior faculty member who’s essentially part time. How do you best use that person?

WHAT ARE SOME OF YOUR ROLES AND RESPONSIBILITIES AS A BLOOMBERG PROFESSOR?

Like any professor, I do research, teach, and contribute to the mission of the university. As a Bloomberg professor, I do these activities across academic disciplines and actively engage with practitioners to turn ideas from academia into solutions to social problems. So in addition to my collaborations at Carey and Whiting, I aim to work more closely with the biostatistics department at the School of Public Health, which does work about randomized controlled trials, the Water Institute, also at Public Health, and the Environment, Energy, Sustainability and Health Institute at the Whiting School. Through opportunities like these, Bloomberg professors serve as examples to our Hopkins colleagues as faculty who succeed in collaborating across disciplines and publishing in different outlets, not just the journals in our respective specialties.

WHICH JHU RESOURCES ARE YOU MOST LOOKING FORWARD TO USING? 

The first thing is just being able to use the brand. Hopkins has a brand that resonates across fields. I came here from a top-25 policy school [Georgia State’s Andrew Young School of Policy Studies], but outside of the policy-school domain the name of the institution doesn’t really resonate with people. Whereas if you walk in anywhere and say you’re from Hopkins, people know that brand and its high quality. I do a lot of work with federal and state policy makers, and when I go to those places, the Hopkins name helps open doors for me.

As for opportunities inside Hopkins, I haven’t worked in health before, which plays a big part in environmental issues. Being at a university that has an environmental health department is a huge opportunity for me. So is being able to connect with engineers. Engineers and economists approach problems very differently. I might look at them from a human behavior side, and they look at them from a technology side. Historically, those two groups have not interacted much and often don’t come up with the same solution to a problem, and the ones they come up with are typically incomplete. Bringing our two approaches together could lead to better results.

IS THE INTERDISCIPLINARY APPROACH THE WAVE OF THE FUTURE FOR ACADEMIC RESEARCH?

For the past couple decades, it’s been recognized that our most difficult problems require interdisciplinary collaboration. People have begun to realize that all the problems we face – whether in the environmental area or health or the economy, or in other areas – require different disciplines all working on the same problem with different approaches, understandings, and interpretations. The problems don’t just have one cause or solution. They’re multidimensional. So the solutions have to be as well. The environment is a great example. It touches on politics, the economy, culture, health, biology, and more. Understanding all of these underlying phenomena is important.

FOR SOMEONE WHO ONCE DIDN’T SEE HIMSELF WORKING IN ACADEMIA, YOU SEEM TO BE ENJOYING IT.

It’s the continual learning. You’re constantly learning new things. Most of the things I’m doing now have nothing to do with the skills I learned in graduate school, including my PhD work. They’re things I’ve learned afterward.

WHAT WAS YOUR DOCTORAL DISSERTATION ON?

It was basically the idea that hydrological services, pollination services – all these things that ecosystems do for humans – are just like any other service. The problem is there’s no market for them. People don’t have to pay for wetlands to protect us from storm surges or pay for soil to retain nutrients. But if we can create property rights, we could treat these things just like other commodities. And so I wondered, what are the implications of that commodification? Would it make the environment better or worse? Would it help humans?

YOU HAVE A HARD-SCIENCE BACKGROUND FROM YOUR STUDY OF BIOLOGY. HOW DOES THAT INFLUENCE YOUR WORK AS AN ECONOMIST?

I put a strong emphasis on causality. In my work, I don’t like to say to policy makers, “You should do this kind of program if you want to achieve these environmental or poverty-alleviation goals,” if there isn’t strong evidence for what I’m proposing. Take any policy or program; plausibly it could make things better, have no effect, or make things worse. The only way you’re going to figure it out is through empirical evidence, getting beyond correlations that really have nothing to do with causal relationships.

I try to show ecologists how to do better science. You don’t just have to throw up your hands and say, “Well, there’s nothing we can do but show correlations.” No, you can do a lot better than that. A lot of what I do is educating physical and natural scientists about how to do better science, which strikes them as unusual because they don’t think of economics as a hard science.

CAN YOU GIVE AN EXAMPLE OF WHAT YOU MEAN?

Designating national parks and reserves is a very popular way of protecting ecosystems from deforestation and other kinds of degradation. The government says, “We’re going to put a boundary around this land so people can’t destroy it.” Then ecologists, to determine the impact of these protection designations, will say, “OK, let’s look at ecosystem change within a protected area vs. the area outside.” Usually what they find is there’s very little ecosystem change inside the area, and outside there’s a lot more. They conclude that this difference measures the impact of the protection.

But what I’d point out is that we don’t randomly drop these national parks and reserves onto the landscape. We tend to select them in areas that don’t have much value economically or politically in the first place. We’re putting them in areas, like Yellowstone, which are not very agriculturally productive. Often the people who live in or near these areas are remote and politically weak, and these are places where you’re not going to see a lot of economic development anyway. If there were oil underneath, it would be really hard to turn that into a national park.

So an economist would point out a rival explanation for the patterns that ecologists observe: These parks and reserves don’t undergo a lot of ecosystem transformation because they’re placed where that sort of transformation is unlikely to happen, with or without the protection designation. Research I’ve been involved in has shown that parks and reserves have a modest beneficial effect on the environment but nowhere near what the ecologists claim.

Additionally, ecologists will point to multi-use protected areas that allow timbering and logging and other similar activities, and they’ll say these areas are in terrible shape, with lots of degradation. But our research has shown that, in many countries, these are good arrangements, because the multi-use reserves are placed in economically valuable areas. Politically, you couldn’t put a national park there, but you might be able to put in one of these multi-use reserves. Yes, they experience some degradation, but there would be a lot more degradation without the multi-use designation that protects parts of the land. So paradoxically, more protective activity is occurring here than there is in Yellowstone or some other reserved area that probably would not have been substantially degraded in the absence of formal protection.

WHAT IS CBEAR ABOUT?

CBEAR is trying to do two things. One is to promote the idea that if government at the federal, state, and local levels is trying to change human behavior in regards to the environment, they should be drawing on insights from the behavioral sciences – economics, sociology, psychology, neuroscience. So CBEAR works to supply those insights. We’re also saying that to really understand what works, you need to have a culture of experimentation, rather than simply assume you know what works. So we introduce randomized controlled trials, testing new or existing government environmental programs with experimental designs.

For example, we’ll go to one of these government agencies and say, “OK, you’re trying to get farmers to reduce their nutrient runoff into the Chesapeake Bay. You’re doing it this way, but behavioral scientists suggest that if you change your program like this, you’ll get a better outcome. But that’s just a hypothesis, so let’s test it. Let’s randomly change the way you interact with some farmers and leave other farmers with the status quo, and then compare the outcomes of these two approaches. Do we get more practices that reduce nutrient runoff from the farm with the new approach?”

LOOKING AT THE HISTORY OF ENVIRONMENTAL PROGRAMS AIMED AT CHANGING HUMAN BEHAVIOR FOR THE BETTER, WOULD YOU SAY THEIR IMPACT HAS BEEN MOSTLY POSITIVE OR NEGATIVE?

Mostly positive. There’s some indirect evidence that some programs have had a perverse effect. For instance, we’ve seen how the Endangered Species Act may perversely hasten the demise of some species. Farmers and landowners refer to a practice called “shoot, shovel, and shut up.” The idea is that I, as a landowner, know there’s an endangered species on my land, but the regulator doesn’t know yet. When he finds out, he will restrict my land use. So I pre-empt him by destroying the habitat of the animal, or killing and burying it before the regulator knows it’s there. “Shoot, shovel, and shut up.” I’ve done some work showing that once some species are put on the endangered list, and no money has been put forward for enforcement, then those species become worse off than others that didn’t get listed. But those perverse outcomes are rare.

By and large, though, our programs are not as effective as they could be, given how much we’re spending on them. There are far more cost-effective ways to achieve our environmental outcomes than what we’re currently trying.

SO CLEARLY THIS IS ECONOMICS WORK THAT CONSIDERS A LOT MORE THAN THE COMPARATIVE PRICES OF BUSHELS OF CORN.

We sometimes use this term, behavioral economics, to describe economics that embraces sociology and psychology and neuroscience. Some have suggested we should stop calling it behavioral economics, because it’s just economics. We now accept the fact that mainstream economics brings in insights from behavioral sciences broadly. It’s not just studying the price of products in the marketplace. People still do that, and we have some here at the business school who do it, but you’ll also find people at Carey like Mario Macis who looks at organ donation and the behaviors associated with that.

In the discipline today, we look at behavioral channels and outcomes that are much broader than what economists looked at 20 years ago. Now economists are incorporating more realistic models about how humans make decisions. They’re identifying a variety of channels by which our education programs, health programs, environmental programs, and traditional poverty-alleviation programs might affect behavior.

Posted on August 25, 2016 In MS in Real Estate and Infrastructure, Global MBA, Flexible MBA, MBA/MS in Environmental Engineering, MBA/MS in Environmental Engineering and Science, MBA/MS in Environmental Planning and Management, Faculty Story, News Item, Alumni, Current Students, Faculty, International Students, New Students