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

Author

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  • 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.

Suggested Citation

  • Ofer H. Azar, 2005. "Why pay extra? Tipping and the importance of social norms and feelings in economic theory," Microeconomics 0503005, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0503005
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    References listed on IDEAS

    as
    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
    2. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    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. 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.
    5. 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.
    6. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
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    8. 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.
    9. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-349, April.
    10. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, August.
    11. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
    12. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
    13. Lynn, Michael & Zinkhan, George M & Harris, Judy, 1993. " Consumer Tipping: A Cross-Country Study," Journal of Consumer Research, Oxford University Press, vol. 20(3), pages 478-488, December.
    14. 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.
    15. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, University Library of Munich, Germany.
    16. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
    17. 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.
    18. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    19. 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.
    Full references (including those not matched with items on IDEAS)

    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 2013-08-02 01:35:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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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. repec:eee:touman:v:62:y:2017:i:c:p:218-233 is not listed on IDEAS
    4. Greiff, Matthias & Egbert, Henrik, 2016. "A Survey of the Empirical Evidence on PWYW Pricing," MPRA Paper 68693, University Library of Munich, Germany.
    5. 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.
    6. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, University Library of Munich, Germany.
    7. 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.
    8. Lynn, Michael, 2015. "Service gratuities and tipping: A motivational framework," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 74-88.
    9. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
    10. 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.
    11. Parrett, Matt, 2015. "Beauty and the feast: Examining the effect of beauty on earnings using restaurant tipping data," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 34-46.
    12. repec:jtr:journl:v:16:y:2017:i:1:p:176-198 is not listed on IDEAS
    13. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, August.
    14. 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.
    15. Natter, Martin & Kaufmann, Katharina, 2015. "Voluntary market payments: Underlying motives, success drivers and success potentials," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 149-157.
    16. 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.
    17. 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.
    18. Chih, Yao-Yu, 2016. "Social network structure and government provision crowding-out on voluntary contributions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 83-90.
    19. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.
    20. 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.

    More about this item

    Keywords

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

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D00 - Microeconomics - - General - - - General

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