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Tipping: The Economics of a Social Norm

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  • Ofer H. Azar

    (Northwestern University)

Abstract

Tipping illustrates the importance of social norms in motivating economic behavior. People tip because this is the social norm and disobeying norms results in social disapproval that creates emotional disutility. Tipping is also economically important: in the United States alone, millions of workers derive most of their income from tips, and annual tips amount to dozens of billions of dollars. I claim that tipping is not a single phenomenon; the economics of some tipping occasions is very different from that of others. I divide tipping to six different categories: reward-tipping, price-tipping, tipping-in advance, bribery-tipping, holiday-tipping and gift-tipping, and discuss the economics of each category. The analysis suggests that in many cases the social norm of tipping has economic justification, because it solves some inefficiency and increases welfare. In particular, tipping can promote good service where other mechanisms fail to do so. This suggests that the relationship between economics and social norms is indeed complex; not only social norms motivate economic behavior, but also economic reasons may promote the establishment of certain social norms, as Arrow (1971) argued.

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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0309002.

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Date of creation: 04 Sep 2003
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Handle: RePEc:wpa:wuwpla:0309002

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Related research

Keywords: Tipping; Social norms; Bribery;

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  1. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
  2. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  3. Lynn, Michael & Zinkhan, George M & Harris, Judy, 1993. " Consumer Tipping: A Cross-Country Study," Journal of Consumer Research, University of Chicago Press, vol. 20(3), pages 478-88, December.
  4. 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.
  5. Lynn, Michael & McCall, Michael, 2000. "Gratitude and gratuity: a meta-analysis of research on the service-tipping relationship," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 29(2), pages 203-214.
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Cited by:
  1. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA.
  2. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, EconWPA.

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