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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.

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  • 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, John Wiley & Sons, vol. 71(1), pages 170-181, July.
    2. 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.
    3. 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.
    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. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
    6. 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.
    7. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 715-753.
    8. Wessels, Walter John, 1997. "Minimum Wages and Tipped Servers," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 334-349, April.
    9. repec:bla:kyklos:v:52:y:1999:i:3:p:315-43 is not listed on IDEAS
    10. 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.
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    Cited by:

    1. 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.
    2. Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
    3. Ofer Azar, 2005. "The Social Norm of Tipping: Does it Improve Social Welfare?," Journal of Economics, Springer, vol. 85(2), pages 141-173, August.
    4. Lynn, Michael, 2021. "The effects of injunctive and descriptive tipping norms on tipping behavior and motives," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    5. 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.
    6. 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.
    7. Amir B. Ferreira Neto & Adam Nowak & Amanda Ross, 2019. "Do Tourists Tip More Than Local Consumers? Evidence from Taxi Rides in New York City," International Regional Science Review, , vol. 42(3-4), pages 281-306, May.
    8. 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.
    9. Azar, Ofer H., 2011. "Business strategy and the social norm of tipping," Journal of Economic Psychology, Elsevier, vol. 32(3), pages 515-525, June.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. Lynn, Michael, 2015. "Service gratuities and tipping: A motivational framework," Journal of Economic Psychology, Elsevier, vol. 46(C), pages 74-88.
    15. Lynn, Michael, 2021. "The effects of occupational characteristics on the motives underlying tipping of different occupations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    16. Ofer H. Azar, 2007. "Do people tip strategically, to improve future service? Theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(2), pages 515-527, May.
    17. 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.
    18. Ofer H. Azar, 2020. "The Economics of Tipping," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 215-236, Spring.
    19. Uzmanoglu, Cihan, 2022. "The stock market tips," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 271-287.
    20. 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.
    21. 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.
    22. Azar, Ofer H., 2006. "Tipping, firm strategy, and industrial organization," MPRA Paper 4485, University Library of Munich, Germany.

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    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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