Alternative Econometric Models of Production in Major League Baseball
Elizabeth Gustafson, Lawrence Hadley, and John Ruggiero
Major League baseball (MLB) is a uniquely suited industry for empirical analysis of production. The industry generates data that directly measure outputs and inputs. Existing empirical analyses of baseball production typically select team winning percent (or the ratio of wins to losses) as the output produced. 1 The selection of team inputs varies between studies. Porter and Scully ( 1982) selected slugging percent and the pitching staff's ratio of strikeouts to walks to measure team inputs. 2 Other analyses use the ratio of runs scored to opposition runs scored as the only input in the production function. 3 Finally, Kahn ( 1993a) and Ruggiero, Hadley, and Gustafson ( 1995) provide a more comprehensive list of team inputs that includes slugging percent, earned run average, and stolen bases, among others.
While the selection of inputs has differed in the existing production analyses, there has been little deviation in the selection of output. The goal of managers and teams is to win baseball games in order to qualify for the playoffs, and ultimately, win the World Series. As a result, the existing baseball production models have selected the winning percent as an output. This assumes that the only objective of management is to maximize the probability of winning. In developing a team, however, management may have other goals that are indirectly related to winning ball games. For example, general managers may attempt to develop a team that will increase attendance in order to increase team revenues. It is common to assume that the primary interest of owners in any industry is the financial success of their business. However, in the case of professional team sports, it is plausible that owners are also interested in the success of their team as a sports entity. Our contention is that, a piori, MLB owners pursue a dual objective that includes the financial success and the sports success of their business (team). This raises the question of whether ignoring the revenue output and