The Economics of Tipping

Ofer Azar

Journal of Economic Perspectives, 2020, vol. 34, issue 2, 215-36

Abstract: Tipping involves dozens of billions of dollars annually in the US alone and is a major income source for millions of workers. But beyond its economic importance and various economic implications, tipping is also a unique economic phenomenon in that people pay tips voluntarily without any legal obligation. Tipping demonstrates that psychological and social motivations can be a substantial reason for economic behavior, and that economic models should go beyond a selfish economic agent who has no feelings in order to capture the full range of economic activities. This article discusses some aspects of tipping, with an emphasis on economic issues: the history of tipping, the main reasons for tipping, why tipping could be a welfare-increasing and sustainable social norm, the relationship between tipping and service quality, how tipping represents a struggle over rents, and issues of discrimination and sexual harassment related to tipping.

JEL-codes: D12 J16 J31 J71 L83 Z13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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DOI: 10.1257/jep.34.2.215

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