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The implications of tipping for economics and management

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  • Ofer H. Azar

    (Northwestern University)

Abstract

Tipping is a phenomenon that illustrates the importance of social norms and psychological reasons in motivating economic behavior. People tip because this is the social norm and disobeying norms results in psychological 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. Tipping is also prevalent in numerous other countries around the globe. While tipping has been studied extensively by psychologists, it received very little attention from economists. To encourage other economists to research this interesting phenomenon, I discuss the implications of tipping for several areas in economics: social economics, behavioral economics, labor economics, and economics of information / management strategy. I provide many ideas for future research both as part of the discussion and in a concluding section.

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File URL: http://128.118.178.162/eps/othr/papers/0309/0309002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Others with number 0309002.

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Date of creation: 02 Sep 2003
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Handle: RePEc:wpa:wuwpot:0309002

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Web page: http://128.118.178.162

Related research

Keywords: tipping; social-economics; behavioral-economics; social-norms; hospitality-industry; restaurants;

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References

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  1. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA.
  2. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
  3. 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.
  4. 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.
  5. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Wiley Blackwell, vol. 52(3), pages 315-43.
  6. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  7. 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.
  8. 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.
  9. Azar, Ofer H., 2007. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 250-265, April.
  10. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
  11. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  12. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
  13. Sugden, Robert, 1989. "Spontaneous Order," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 85-97, Fall.
  14. Ofer H. Azar, 2003. "Tipping: The Economics of a Social Norm," Labor and Demography 0309002, EconWPA.
  15. George A. Akerlof & Rachel E. Kranton, 2000. "Economics And Identity," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 715-753, August.
  16. 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.
  17. Bodvarsson, Orn B. & Gibson, William A., 1994. "Gratuities and customer appraisal of service: Evidence from Minesota restaurants," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 23(3), pages 287-302.
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Citations

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Cited by:
  1. Ofer H. Azar, 2003. "What sustains social norms and how they evolve? The case of tipping," Others 0309001, EconWPA.
  2. 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.
  3. Ofer H. Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Others 0503013, EconWPA.
  4. Pieter Gautier & Bas van der Klaauw, 2006. "Grow rich while you sleep: Selection in experiments with voluntary participation," Natural Field Experiments 00245, The Field Experiments Website.
  5. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, 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. 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.
  8. Ofer H. Azar, 2005. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," Microeconomics 0503005, EconWPA.
  9. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.
  10. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA.
  11. 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.
  12. repec:ebl:ecbull:v:4:y:2006:i:33:p:1-7 is not listed on IDEAS
  13. Morris Altman, 2006. "Opening-up the objective function: choice behavior and economic and non-economic variables—core and marginal altruism," Economics Bulletin, AccessEcon, vol. 4(33), pages 1-7.
  14. Pieter Gautier & Bas van der Klaauw, 2006. "Grow rich while you sleep: Selection in Experiments with Voluntary Participation," Tinbergen Institute Discussion Papers 06-088/3, Tinbergen Institute.
  15. Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.

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