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

Ofer Azar ()

Others from University Library of Munich, Germany

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: D11 J30 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-03-29
New Economics Papers: this item is included in nep-evo
Note: Type of Document - pdf; pages: 40
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Citations: View citations in EconPapers (15) Track citations by RSS feed

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