Incentives and Service Quality in the Restaurant Industry: The Tipping – Service Puzzle

Ofer H. Azar ()

MPRA Paper from University Library of Munich, Germany

Abstract: Tipping is a significant economic activity (tips in the US food industry alone amount to about $42 billion annually) that was claimed to improve service quality and increase economic efficiency, because it gives incentives to provide excellent service, and therefore allows to avoid costly monitoring of workers. The article suggests that this common wisdom might be wrong. A simple model shows formally that tips can improve service only if they are sensitive enough to service quality. Empirical evidence suggests that tips are hardly affected by service quality. Nevertheless, rankings of service quality by customers are very high; the co-existence of these two findings is denoted "the tipping – service puzzle,” and several possible explanations for it are offered.

Keywords: Tipping; Service quality; Social norms; Waiters; Restaurants; The hospitality industry (search for similar items in EconPapers)
JEL-codes: Z13 D10 L80 J30 M50 A12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe
Date: 2005, Revised 2006
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Related works:
Journal Article: Incentives and service quality in the restaurant industry: the tipping-service puzzle (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:4457

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