Optimal Monitoring with External Incentives: The Case of Tipping

Ofer Azar

Industrial Organization from University Library of Munich, Germany

Abstract: The article examines the optimal choice of monitoring intensity when workers face external incentives (incentives that are not provided by the firm), such as tips, satisfaction from working well, or the desire to build reputation in order to be more attractive to other employers. Increase in such external incentives reduces optimal monitoring intensity but nevertheless increases effort and profits unambiguously. The model explains why U.S. firms supported the establishment of tipping in the late 19th century but raises the possibility that European firms make costly mistakes by replacing tips with service charges.

Keywords: external incentives; tipping; monitoring; intrinsic motivation; reputation (search for similar items in EconPapers)
JEL-codes: D21 J30 L20 L80 (search for similar items in EconPapers)
Date: 2003-12-19
Note: Type of Document - pdf
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Citations: View citations in EconPapers (7)

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Journal Article: Optimal Monitoring with External Incentives: The Case of Tipping (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0312004

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