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Do people tip strategically, to improve future service? Theory and evidence

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  • Ofer H. Azar

Abstract

A central question about tipping is whether people tip strategically, to improve future service, or only because tipping is a social norm. I present a theoretical model that incorporates psychological utility associated with tipping (because it is a social norm) and allows tipping to be motivated also by future service considerations. The model predicts that if future service is a reason for tipping, the sensitivity of tips to service quality should be higher for repeating customers than for non-repeating ones. Surveys of 597 restaurant customers are analysed and suggest that future service is not a reason for tipping.

Suggested Citation

  • Ofer H. Azar, 2007. "Do people tip strategically, to improve future service? Theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 515-527, May.
    • Handle: RePEc:cje:issued:v:40:y:2007:i:2:p:515-527
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    as
    1. Ofer H. Azar, 2004. "Optimal Monitoring with External Incentives: The Case of Tipping," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 170-181, July.
    2. Ruffle, Bradley J., 1998. "More Is Better, But Fair Is Fair: Tipping in Dictator and Ultimatum Games," Games and Economic Behavior, Elsevier, vol. 23(2), pages 247-265, May.
    3. 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.
    4. Ofer H. Azar, 2003. "The Social Norm of Tipping: A Review," Others 0309006, University Library of Munich, Germany.
    5. 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.
    6. Ofer Azar, 2005. "Who do we tip and why? An empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1871-1879.
    7. 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.
    8. Zvi Schwartz, 1997. "The Economics of Tipping: Tips, Profits and the Market's Demand—Supply Equilibrium," Tourism Economics, , vol. 3(3), pages 265-279, September.
    9. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, August.
    10. Ruffle, Bradley J., 1999. "Gift giving with emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 399-420, July.
    11. Ofer H. Azar, 2003. "The implications of tipping for economics and management," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 30(10), pages 1084-1094, October.
    12. 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.
    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.
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    Cited by:

    1. Azar, Ofer H., 2012. "The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare," Labour Economics, Elsevier, vol. 19(5), pages 748-755.
    2. Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
    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, John Wiley & Sons, vol. 75(1), pages 246-260, July.
    4. 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.
    5. Azar, Ofer H., 2019. "The influence of psychological game theory," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 445-453.
    6. D’Agostino Elena & Lisciandra Maurizio, 2018. "Binding and Non-Binding Contracts: A Theoretical Appraisal," Review of Law & Economics, De Gruyter, vol. 14(2), pages 1-27, July.
    7. Agnès Festré, 2010. "Incentives And Social Norms: A Motivation‐Based Economic Analysis Of Social Norms," Journal of Economic Surveys, Wiley Blackwell, vol. 24(3), pages 511-538, July.
    8. 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.
    9. Lynn, Michael, 2015. "Service gratuities and tipping: A motivational framework," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 74-88.
    10. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
    11. 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.
    12. Hoover, Hanna, 2022. "Nudges as norms: Evidence from the NYC taxi cab industry," Journal of Economic Psychology, Elsevier, vol. 92(C).
    13. Ockenfels, Axel & Werner, Peter, 2014. "Scale manipulation in dictator games," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 138-142.
    14. Ofer H. Azar, 2020. "The Economics of Tipping," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 215-236, Spring.
    15. Kakkar, Vikas & Li, King King, 2022. "Cash or card? Impression management and restaurant tipping behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    16. Michal Kvasnička, 2018. "What Motivates Restaurant Customers to Tip: Evidence from the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 66(1), pages 273-282.
    17. 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.
    18. Lynn, Michael, 2018. "How motivations for tipping vary with occupational differences in descriptive tipping norms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 77(C), pages 1-10.
    19. 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.
    20. 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.
    21. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.
    22. 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.
    23. D'Agostino, Elena & Lisciandra, Maurizio, 2012. "Enforceable vs. non-enforceable contracts: a theoretical appraisal with fair players," MPRA Paper 41261, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • D10 - Microeconomics - - Household Behavior - - - General

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