Tipping as risk sharing
AbstractTipping is often dismissed as an exception to the assumption of rational economic agents. This paper describes situations where tipping is, in fact, an effective mechanism for risk sharing and welfare improvement. When risk-averse customers purchase a service with uncertain quality, tipping can reduce the customer's exposure to risk by making part of the price of the service discretionary. These findings help explain why we tend to tip restaurant workers but not retail workers and why some high-risk service providers, such as lawyers and automobile mechanics, are not typically tipped.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).
Volume (Year): 38 (2009)
Issue (Month): 4 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620175
Tipping Gratuity Social norm Rational choice Risk-aversion;
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