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The implications of tipping for economics and management

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Author Info
Ofer H. Azar (Northwestern University)

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

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Find related papers by JEL classification:
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
L00 - Industrial Organization - - General - - - General
M00 - Business Administration and Business Economics; Marketing; Accounting - - General - - - General
J00 - Labor and Demographic Economics - - General - - - General
D10 - Microeconomics - - Household Behavior - - - General
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ofer H. Azar, 2003. "Tipping: The Economics of a Social Norm," Labor and Demography 0309002, EconWPA. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Oxford University Press, vol. 35(2), pages 334-49, April.
  4. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter. [Downloadable!] (restricted)
  5. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  6. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Blackwell Publishing, vol. 52(3), pages 315-43.
  7. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall. [Downloadable!] (restricted)
  8. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA. [Downloadable!]
  9. Lynn, Michael & McCall, Michael, 2000. "Gratitude and gratuity: a meta-analysis of research on the service-tipping relationship," The Journal of Socio-Economics, Elsevier, vol. 29(2), pages 203-214. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March. [Downloadable!] (restricted)
  12. George A. Akerlof & Rachel E. Kranton, 2000. "Economics And Identity," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 715-753, August. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Ofer H. Azar, 2005. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," Microeconomics 0503005, EconWPA. [Downloadable!]
    Other versions:
  16. Lynn, Michael & Zinkhan, George M & Harris, Judy, 1993. " Consumer Tipping: A Cross-Country Study," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 20(3), pages 478-88, December.
  17. Sugden, Robert, 1989. "Spontaneous Order," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 85-97, Fall. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ofer Azar, 2008. "Strategic Behavior and Social Norms in Tipped Service Industries," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 8(1), pages 1778-1778. [Downloadable!] (restricted)
  2. Ofer H. Azar, 2003. "What sustains social norms and how they evolve? The case of tipping," Others 0309001, EconWPA. [Downloadable!]
    Other versions:
  3. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, EconWPA. [Downloadable!]
  4. Ofer H. Azar, 2005. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," Microeconomics 0503005, EconWPA. [Downloadable!]
    Other versions:
  5. 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. [Downloadable!]
    Other versions:
  6. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany. [Downloadable!]
  7. Ofer H. Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Others 0503013, EconWPA. [Downloadable!]
    Other versions:
  8. 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. [Downloadable!]
    Other versions:
  9. Ofer H. Azar, 2003. "The History of Tipping - From Sixteenth-Century England to United States in the 1910s," Economic History 0309001, EconWPA. [Downloadable!]
    Other versions:
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