Optimal Monitoring with External Incentives: The Case of Tipping
AbstractThis article examines the optimal choice of monitoring intensity when workers face external incentives (incentives that are not provided by the firm), such as tips, satisfaction from working well, or the desire to build reputation in order to be more attractive to other employers. Increase in such external incentives reduces optimal monitoring intensity but nevertheless increases effort and profits unambiguously. The model explains why U.S. firms supported the establishment of tipping in the late 19th century and raises the possibility that European firms make costly mistakes by replacing tips with service charges.
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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 71 (2004)
Issue (Month): 1 (July)
Other versions of this item:
- Ofer H. Azar, 2003. "Optimal Monitoring with External Incentives: The Case of Tipping," Industrial Organization 0312004, EconWPA.
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L80 - Industrial Organization - - Industry Studies: Services - - - General
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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