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

  • Ofer H. Azar

    (Ben-Gurion University of the Negev)

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://econwpa.repec.org/eps/mic/papers/0503/0503005.pdf
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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
Contact details of provider: Web page: http://econwpa.repec.org

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  1. 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.
  2. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, 08.
  3. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Ernst Fehr & Armin Falk, . "Psychological Foundations of Incentives," IEW - Working Papers 095, Institute for Empirical Research in Economics - University of Zurich.
  5. Richard H. Thaler, 2000. "From Homo Economicus to Homo Sapiens," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 133-141, Winter.
  6. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
  7. Ofer H. Azar, 2003. "Optimal Monitoring with External Incentives: The Case of Tipping," Industrial Organization 0312004, EconWPA.
  8. 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.
  9. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-49, April.
  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. 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. 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.
  14. 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.
  15. 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.
  16. Ofer H. Azar, 2003. "What sustains social norms and how they evolve? The case of tipping," Others 0309001, EconWPA.
  17. Ofer H. Azar, 2003. "The implications of tipping for economics and management," Others 0309002, EconWPA.
  18. 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.
  19. 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.
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