Optimal Monitoring with External Incentives: The Case of Tipping
AbstractThe 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 but raises the possibility that European firms make costly mistakes by replacing tips with service charges.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0312004.
Date of creation: 19 Dec 2003
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external incentives; tipping; monitoring; intrinsic motivation; reputation;
Other versions of this item:
- Ofer H. Azar, 2004. "Optimal Monitoring with External Incentives: The Case of Tipping," Southern Economic Journal, Southern Economic Association, vol. 71(1), pages 170-181, July.
- 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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- Ofer H. Azar, 2005.
"Why pay extra? Tipping and the importance of social norms and feelings in economic theory,"
- Azar, Ofer H., 2007. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," The Journal of Socio-Economics, Elsevier, vol. 36(2), pages 250-265, April.
- Ofer H. Azar & Yossi Tobol, 2008.
"Tipping as a Strategic Investment in Service Quality: An Optimal-Control Analysis of Repeated Interactions in the Service Industry,"
Southern Economic Journal,
Southern Economic Association, vol. 75(1), pages 246-260, July.
- Azar, Ofer H. & Tobol, Yossi, 2006. "Tipping as a strategic investment in service quality: An optimal-control analysis of repeated interactions in the service industry," MPRA Paper 4393, University Library of Munich, Germany, revised 2007.
- Holland, Steven J., 2009. "Tipping as risk sharing," The Journal of Socio-Economics, Elsevier, vol. 38(4), pages 641-647, August.
- Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.
- Lynn, Michael & Jabbour, Patrick & Kim, Woo Gon, 2012. "Who uses tips as a reward for service and when? An examination of potential moderators of the service–tipping relationship," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 90-103.
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- Ofer Azar, 2005.
"Who do we tip and why? An empirical investigation,"
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- Ofer Azar, 2009.
"Incentives and service quality in the restaurant industry: the tipping-service puzzle,"
Taylor and Francis Journals, vol. 41(15), pages 1917-1927.
- Azar, Ofer H., 2005. "Incentives and Service Quality in the Restaurant Industry: The Tipping – Service Puzzle," MPRA Paper 4457, University Library of Munich, Germany, revised 2006.
- Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
- Ofer H. Azar, 2005.
"The Social Norm of Tipping: Does it Improve Social Welfare?,"
- Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, 08.
- Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA.
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