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

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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, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpmi:0503005
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    References listed on IDEAS

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    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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tipping; Social norms; Feelings; Consumer behavior; Restaurants; behavioral economics;
    All these keywords.

    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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