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Who Do We Tip and Why? An Empirical Investigation

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Author Info

  • Ofer H. Azar

    (Ben-Gurion University of the Negev)

Abstract

An important question about social norms is whether they are created to increase welfare; I address it by examining the characteristics of tipped and non-tipped occupations. Tipping prevalence is negatively correlated with worker’s income and consumer’s monitoring ability and positively with consumer’s income and closeness between the worker and the consumer. The results refute a common belief that tipping exists to improve economic efficiency by lowering monitoring costs. Tipping, however, is more prevalent when consumers feel empathy and compassion for workers and want to show gratitude for good service, suggesting that tipping might increase welfare if welfare includes psychological utility.

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File URL: http://128.118.178.162/eps/lab/papers/0502/0502005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0502005.

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Length: 20 pages
Date of creation: 20 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0502005

Note: Type of Document - pdf; pages: 20
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Web page: http://128.118.178.162

Related research

Keywords: Tipping; Service industries; social norms; social welfare; behavioral economics; feelings; emotions;

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References

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  1. 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.
  2. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
  3. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Wiley Blackwell, vol. 52(3), pages 315-43.
  4. George A. Akerlof & Rachel E. Kranton, 2000. "Economics And Identity," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 715-753, August.
  5. Ofer H. Azar, 2003. "What sustains social norms and how they evolve? The case of tipping," Others 0309001, EconWPA.
  6. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
  7. Jacob, Nancy L & Page, Alfred N, 1980. "Production, Information Costs, and Economic Organization: The Buyer Monitoring Case," American Economic Review, American Economic Association, vol. 70(3), pages 476-78, June.
  8. Bodvarsson, Orn B. & Gibson, William A., 1994. "Gratuities and customer appraisal of service: Evidence from Minesota restaurants," The Journal of Socio-Economics, Elsevier, vol. 23(3), pages 287-302.
  9. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
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Citations

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Cited by:
  1. Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
  2. Holland, Steven J., 2009. "Tipping as risk sharing," The Journal of Socio-Economics, Elsevier, vol. 38(4), pages 641-647, August.
  3. 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.
  4. Saunders, Stephen G. & Lynn, Michael, 2010. "Why tip? An empirical test of motivations for tipping car guards," Journal of Economic Psychology, Elsevier, vol. 31(1), pages 106-113, February.
  5. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
  6. Ofer Azar, 2009. "Incentives and service quality in the restaurant industry: the tipping-service puzzle," Applied Economics, Taylor and Francis Journals, vol. 41(15), pages 1917-1927.
  7. Bove, Liliana L. & Pervan, Simon J. & Beatty, Sharon E. & Shiu, Edward, 2009. "Service worker role in encouraging customer organizational citizenship behaviors," Journal of Business Research, Elsevier, vol. 62(7), pages 698-705, July.
  8. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, 08.
  9. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.

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