THE HAZARDS OF MORAL HAZARD: COMMENT ON GOFF, SHUGHART, AND TOLLISON

I. INTRODUCTION In a recent study, Golf, Shughart, and Tollison [1997] demonstrate that the adoption of the designated hitter rule in the American League is associated with a sharp increase in the number of hit batsmen. These authors suggest an intriguing economic explanation for this empirical regularity: since pitchers in the American League no longer have to bat and risk being hit by pitches themselves, they do not face the full cost of their actions when hitting opposing batters, leading to a classic moral hazard problem. It is important to note, however, that the reduced-form empirical strategy used by those authors has no power to distinguish between such a moral hazard story and other competing explanations. Foremost among the other explanations is a simple compositional change in the type of batter faced. Pitchers are by-and-large very poor hitters, making the marginal cost of a hit batsmen when a pitcher is at the plate high relative to that of other batters. Consequently, pitchers are only roughly one-third as likely to be hit by a pitch as are other batters. With the adoption of the designated hitter rule, pitchers are replaced at the plate by designated hitters who are far more effective batters and therefore more likely to be hit batsmen. Thus even if there is no change in the rate at which any batter of a given skill level is a hit batsmen (i.e. no change in behavior on the part of pitchers), the number of hit batsmen will rise when the designated hitter rule is put into effect. Using data from 1993-1996, I demonstrate in this paper that compositional effects alone explain over 80% of the observed cross-league difference in hit batsmen in my sample. Excluding pitchers, National League batters are hit by a pitch once every 115.4 at bats and American League batters are hit every 114.5 at bats, suggesting little if any moral hazard once compositional differences are eliminated. In fairness to Goff et al., however, it should be stressed that the observed gap in hit batsmen between the leagues is smaller in my sample than in theirs, so that it is unlikely that compositional effects alone can explain their entire finding.(1) A number of other factors, however, further call into question the plausibility of the moral hazard argument. First, the very low rate of pitchers being hit by pitched balls when at the plate implies that only rarely are pitchers actually punished for hitting an opposing batter. Even if it were the case that every instance of a pitcher being hit by a pitch was retribution, [TABULAR DATA FOR TABLE I OMITTED] only one in 50 times would a pitcher be punished for hitting an opposing batsmen. Second, there does not appear to be any correlation between the frequency with which pitchers hit opposing batsmen and the likelihood that the pitcher will himself be hit while at the plate. If retaliation is the motivation for hitting pitchers when at bat, as predicted by the moral hazard model, then there should be a positive correlation between those two variables. II. FURTHER EXPLORATION OF THE MORAL HAZARD ARGUMENT Table I presents relevant data by league for the years 1993-1996. In addition, National League batting statistics are broken down into pitchers and non-pitchers. The first four columns provide aggregate totals, the last three columns normalize by at-bats for easier comparisons. A number of important points emerge from Table I. First, comparing American League and National League totals, the elevated rate of hit batsmen in the American League demonstrated by Goff, Shughart, and Tollison [1997] for the period up until 1990 is also present in the more recent data used here. American League batters are hit an additional 131 times over the four year period;(2) normalized by at-bats, American League batters are 5% more likely to be hit by pitches. The difference between the leagues is somewhat smaller than that observed by Goff et al. in the earlier period (roughly 50 additional hit batsmen per year). …