MORAL HAZARD AND THE EFFECTS OF THE DESIGNATED HITTER RULE REVISITED

I. INTRODUCTION In a recent paper in this journal, we [Goff, Shughart, and Tollison 1997] hypothesized that the introduction of the Designated Hitter (DH) rule in the American League but not the National League of Major League Baseball in 1973 created the potential for a classic moral hazard problem. Because they are no longer required to appear at the plate, American League pitchers can throw at opposing hitters with greater impunity (i.e., at a lower cost) than National League pitchers, who still must take their turns at bat. The economic theory of moral hazard clearly predicts that more batters will be hit by pitches in the American League than in the National League under such circumstances, an implication that was supported by our empirical evidence, which covered the period running from the birth of the American League in 1901 through the end of the 1990 pennant campaign. After controlling for other relevant factors, we found that American League batters had been "plunked" at rates 10% to 15% higher than their National League counterparts in the typical regular baseball season since the DH rule went into effect. Two comments published in this issue raise questions about the empirical magnitude of the DH effect and cast doubt on our interpretation of the evidence. In particular, relying on post-1990 data unavailable to us at the time our paper was in press, Levitt [1998] and Trandel, White, and Klein [1998] suggest that the differences in the rates at which batters are hit by pitches in baseball's two major leagues may no longer be statistically significant and, moreover, to the extent that they are, that these differences are better explained by post-1973 changes in the composition of American League batters than by the DH rule's effects on pitchers' own costs and benefits of throwing at opposing hitters. Levitt and Trandel, White, and Klein contend that the number of batters hit by pitches rose in the American League after 1973, not because pitchers had less to fear from retaliation directed against them personally, but because the substitution of hard-hitting DHs for weak-hitting pitchers made beanball more profitable: AL team managers had more to gain from placing designated hitters on base by instructing pitchers to plunk them than from giving free passes to pitchers, who otherwise represent easy outs. In what follows, we explore the implications of this alternative hypothesis more fully. Because "better hitting in the American League" does not explain inter-league differences in hit batsmen prior to 1990, and because the DH rule continues to be a significant determinant of inter-league differences in hit batsmen after 1990 once exogenous events in the National League are taken into account, we conclude that our original interpretation of the empirical evidence stands. II. WHAT HAPPENED IN THE 1990s? Two stylized facts lead Trandel, White, and Klein to conclude that moral hazard explains little, if any, of the observed differences in hit batsmen between the American and National leagues. One is that, when our post-World War II subsample is expanded by adding data from regular season games played through August 31, 1997, at most only about 3% of the lower rate of hit batsmen in the National League can be attributed to the American League's adoption of the DH rule in 1973.(1) The other is that, while, consistent with our results, American League batters were in fact hit by pitches 12% more frequently over the 1947-1990 period, this empirical regularity can be explained better by inter-league differences in the composition of batters. In particular, Trandel, White, and Klein suggest that the evidence supports the following statement. "To the extent that American League batters are (on average) more likely to be hit by pitches than are National League batters, the difference is largely because the AL batters are (on average) better hitters, and are thus less costly and more beneficial to hit" (p. …