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Why pay extra? Tipping and the importance of social norms and feelings in economic theory

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Author Info

  • Ofer H. Azar

    (Ben-Gurion University of the Negev)

Abstract

Tipping is a multi-billion-dollar phenomenon that standard economic models find hard to explain. I discuss several aspects of tipping and 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. Often tipping has economic justification, because it solves some inefficiency and increases welfare. Analyzing the potential reasons for tipping illustrates the importance of social norms and feelings (e.g. embarrassment and unfairness felt when one does not tip) in motivating economic behavior. Retaliatory behavior that workers sometimes exhibit towards non-tipping patrons is then discussed, and ideas for future research are proposed.

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File URL: http://128.118.178.162/eps/mic/papers/0503/0503005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0503005.

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Length: 31 pages
Date of creation: 08 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0503005

Note: Type of Document - pdf; pages: 31
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Web page: http://128.118.178.162

Related research

Keywords: Tipping; Social norms; Feelings; Consumer behavior; Restaurants; behavioral economics;

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References

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  1. 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.
  2. Ernst Fehr & Simon G�chter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
  3. 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.
  4. Ofer H. Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Others 0503013, EconWPA.
  5. Azar, Ofer H., 2004. "The history of tipping--from sixteenth-century England to United States in the 1910s," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(6), pages 745-764, December.
  6. 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.
  7. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, EconWPA.
  8. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
  9. 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.
  10. Rachel Barkan & Aviad Israeli, 2004. "Testing servers' roles as experts and managers of tipping behaviour," The Service Industries Journal, Taylor & Francis Journals, vol. 24(6), pages 91-108, November.
  11. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
  12. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  13. 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.
  14. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
  15. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
  16. 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.
  17. 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.
  18. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  19. Lynn, Michael & Grassman, Andrea, 1990. "Restaurant tipping: an examination of three 'rational' explanations," Journal of Economic Psychology, Elsevier, vol. 11(2), pages 169-181, June.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Tipping Waiters Makes Us Happy So It Will Never Be Banished
    by Shaunacy Ferro in Business Insider on 2013-08-01 20:35:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Sari, Nazmi, 2013. "On anti-smoking regulations and tobacco consumption," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 43(C), pages 60-67.
  2. Riener, Gerhard & Traxler, Christian, 2012. "Norms, moods, and free lunch: Longitudinal evidence on payments from a Pay-What-You-Want restaurant," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 476-483.
  3. 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.
  4. 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.
  5. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.
  6. 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.
  7. Greenberg, Adam Eric, 2014. "On the complementarity of prosocial norms: The case of restaurant tipping during the holidays," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 103-112.
  8. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, EconWPA.
  9. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, 08.
  10. Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
  11. Holland, Steven J., 2009. "Tipping as risk sharing," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 641-647, August.
  12. Parrett, Matt, 2011. "Do people with food service experience tip better?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 464-471.
  13. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.

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