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Who do we tip and why? An empirical investigation

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  • Ofer Azar

Abstract

An important question about social norms is whether they are created to increase welfare. This is addressed 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.

Suggested Citation

  • Ofer Azar, 2005. "Who do we tip and why? An empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1871-1879.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:16:p:1871-1879 DOI: 10.1080/00036840500119018
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    References listed on IDEAS

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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. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
    3. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-349, April.
    4. Loewenstein, George, 1999. "Because It Is There: The Challenge of Mountaineering . . . for Utility Theory," Kyklos, Wiley Blackwell, vol. 52(3), pages 315-343.
    5. 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.
    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 476-478, June.
    8. 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.
    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 728-741, September.
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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," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 641-647, August.
    3. Ofer H. Azar & Yossi Tobol, 2008. "Tipping as a Strategic Investment in Service Quality: An Optimal-Control Analysis of Repeated Interactions in the Service Industry," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 246-260, July.
    4. Lynn, Michael, 2016. "Why are we more likely to tip some service occupations than others? Theory, evidence, and implications," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 134-150.
    5. 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.
    6. Lynn, Michael, 2015. "Service gratuities and tipping: A motivational framework," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 74-88.
    7. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
    8. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, pages 141-173.
    9. Lynn, Michael & Starbuck, Mark M., 2015. "Tipping customs: The effects of national differences in attitudes toward tipping and sensitivities to duty and social pressure," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 158-166.
    10. Lynn, Michael, 2015. "Explanations of service gratuities and tipping: Evidence from individual differences in tipping motivations and tendencies," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 65-71.
    11. Ofer Azar, 2009. "Incentives and service quality in the restaurant industry: the tipping-service puzzle," Applied Economics, Taylor & Francis Journals, vol. 41(15), pages 1917-1927.
    12. Amir B. Ferreira Neto & Adam Nowak & Amanda Ross, 2017. "Do tourists tip more than local consumers? Evidence of taxi rides in New York City," Working Papers 17-14, Department of Economics, West Virginia University.
    13. 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.
    14. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L8 - Industrial Organization - - Industry Studies: Services
    • D0 - Microeconomics - - General

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