The social norm of tipping: Does it improve social welfare?

Research output: Contribution to journalArticlepeer-review

30 Scopus citations

Abstract

Some economists believe that social norms are created to improve welfare where the market fails. I show that tipping is such a norm, using a model in which a waiter chooses service quality and then a customer chooses the tip. The customer's utility depends on the social norm about tipping and feelings such as embarrassment and fairness. The equilibrium depends on the exact social norm: higher sensitivity of tips to service quality (according to the norm) yields higher service quality and social welfare. Surprisingly, high tips for low quality may also increase service quality and social welfare.

Original languageEnglish
Pages (from-to)141-173
Number of pages33
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume85
Issue number2
DOIs
StatePublished - 1 Aug 2005

Keywords

  • Social norms
  • Tipping

ASJC Scopus subject areas

  • Business, Management and Accounting (all)
  • Economics and Econometrics

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