Abstract
We present an optimal-control model in which tipping behavior creates a reputation that affects future service. Tipping and reputation can evolve in four path prototypes: converging to an interior equilibrium, converging to minimum tips and reputation, and two prototypes that start differently but end with tips and reputation increasing indefinitely. Analyzing the interior equilibrium indicates that when reputation erodes more quickly (capturing lower patronage frequency), equilibrium reputation is lower. Interestingly, however, tips may be higher. Increasing the minimal tip raises tips by the same increase and does not change reputation. A more patient customer leaves higher tips and reaches a higher reputation.
| Original language | English |
|---|---|
| Pages (from-to) | 246-260 |
| Number of pages | 15 |
| Journal | Southern Economic Journal |
| Volume | 75 |
| Issue number | 1 |
| State | Published - 1 Jul 2008 |
ASJC Scopus subject areas
- Economics and Econometrics