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Why Do We Tip Taxicab Drivers?

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  • David Flath

Abstract

The leading economic explanation for tipping -that is, explanation why the practice is socially beneficial, not why individuals leave tips even though it is not narrowly advantageous to them- is that it confers an incentive to provide personal services. This fits many instances in which tipping is common but does not fit the taxicab business very well. I propose a novel explanation for tipping that does fit the taxi case. It is that tipping amounts to Lindahl pricing of the services of vacant cabs (essentially, reduced waiting time), a local public good for taxi customers.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0738.

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Date of creation: May 2009
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Handle: RePEc:dpr:wpaper:0738

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  1. Conlin, Michael & Lynn, Michael & O'Donoghue, Ted, 2003. "The norm of restaurant tipping," Journal of Economic Behavior & Organization, Elsevier, vol. 52(3), pages 297-321, November.
  2. Azar, Ofer H., 2004. "What sustains social norms and how they evolve?: The case of tipping," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 49-64, May.
  3. Cairns, Robert D. & Liston-Heyes, Catherine, 1996. "Competition and regulation in the taxi industry," Journal of Public Economics, Elsevier, vol. 59(1), pages 1-15, January.
  4. Flath, David, 2006. "Taxicab regulation in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 20(2), pages 288-304, June.
  5. Mohring, Herbert, 1972. "Optimization and Scale Economies in Urban Bus Transportation," American Economic Review, American Economic Association, vol. 62(4), pages 591-604, September.
  6. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  7. Arnott, Richard, 1996. "Taxi Travel Should Be Subsidized," Journal of Urban Economics, Elsevier, vol. 40(3), pages 316-333, November.
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