The Social Norm of Tipping: Does it Improve Social Welfare?

Ofer H. Azar ()

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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.

Keywords: Tipping; Social norms; Social welfare; Behavioral economics; Psychology and economics; psychological economics (search for similar items in EconPapers)
JEL-codes: J30 D11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo
Date: Written
Note: Type of Document - pdf; pages: 40
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http://129.3.20.41/eps/othr/papers/0503/0503013.pdf (application/pdf)

Related works:
Journal Article: The Social Norm of Tipping: Does it Improve Social Welfare? (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpot:0503013

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