Wednesday, January 11, 2012

Moral Hazard of the Designated Hitter (Part 3)

It is important to note that this exact analysis is relevant to 1993. In 1994, for the first time since the designated hitter rule was introduced, the NL had more hit batsmen than did the AL. This has been true every year since 1994, with the exception of 1996 [Appendix B]. In 1994, MLB introduced another rule called the “double-warning rule”. 11 Under this rule, the umpire warns both teams if he believes a pitcher has intentionally hit a batter and, if a retaliatory hit follows such a warning, the offending pitcher and his manager are immediately ejected.12

Essentially this rule means that pitchers in both leagues have “one free hit” before both sides are warned.13 As a result of this rule, NL pitchers are now behaving like AL pitchers and a moral hazard now exists in both leagues. From 1994, the amount of batters hit by pitchers in both leagues has risen, though more significantly in the NL, to where they are now similar [Appendix B]. The double-warning rule has helped masked some of the moral hazard of the designated hitter rule and, should MLB extinguish the designated hitter rule, the moral hazard would simply stem from a different source.

Like almost every rule or law, the designated hitter rule has both its benefits and costs. Though the moral hazard problem is considered a disadvantage of the rule, there still exists the possibility that the benefits of such a rule could outweigh the costs. After some analysis, it will become clear that the marginal benefits of the designated hitter rule will exceed the marginal costs of the designated hitter rule. Advantages of the designated hitter rule were touched on lightly earlier in the paper.

First, the designated hitter rule increases a team’s offensive output, resulting in higher ballpark attendance. In 1972, the AL scored 824 fewer runs than the NL, with almost 200 fewer home runs [Appendix C]. 1415 A season later, in 1973, the AL had 252 more runs scored than the NL, while hitting 377 home runs on the year, 2 more than the NL [Appendix C].1617 According to Buehler and Calandrillo, economists Bruce Domazlicky and Peter Kerr found that an estimated 2,211 additional fans per opening can be attributed to the designated hitter rule.18

Second, the rule has the ability to extend the careers of older players or players plagued by an injury. For example, the rule allowed Jim Thome to play 6 more years as a designated hitter after being removed from defensive duty.19 Without the rule, Thome would have never reached his 600th home run. Similarly, the rule helps ease injured players back from recovery. Super star Justin Morneau of the Minnesota Twin’s is expected to move to the designated hitter while recovering from his ongoing concussion symptoms as well as other ailments.20 Morneau may not be healthy enough to contribute defensively, but the designated hitter rule will allow him to continue his MLB career; a NL player with the same health complaints may be forced into retirement.

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