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Abstract:
Tipping is a multi-billion-dollar phenomenon that challenges the traditional assumption of selfish economic agents who have no feelings and do not care about social norms. This paper reviews the early history of tipping and offers an economic analysis of different aspects of tipping. Using the historical evidence, it then addresses two major questions about tipping: why do people tip? And does tipping improve service quality? The reasons for tipping changed over the years, but conforming to social norms and avoiding embarrassment were generally the main reasons. Tipping seems to improve service quality; the extent of the improvement varies across occupations.

Tipping, History, Social norms, Feelings

Abstract:
Rankings of strategy journals are important for authors, readers, and promotion and tenure committees.We present several rankings, based either on the number of articles that cited the journal or the per article impact. Our analyses cover various periods between 1991 and 2006, for most of which the Strategic Management Journal was in first place and Journal of Economics & Management Strategy (JEMS) second, although JEMS ranked first in certain instances. Long Range Planning and Technology Analysis & Strategic Management also achieve a top position. Strategic Organization makes an impressive entry and achieves a top position in 2003-2006.

Abstract:
Rankings of strategy journals are important for authors, readers, and promotion and tenure committees. We present several rankings, based either on the number of articles that cited the journal or the per-article impact. Our analyses cover various periods between 1991 and 2006, for most of which the Strategic Management Journal was in first place and Journal of Economics & Management Strategy (JEMS) second, although JEMS ranked first in certain instances. Long Range Planning and Technology Analysis & Strategic Management also achieve a top position. Strategic Organization makes an impressive entry and achieves a top position in 2003-2006.

Journal rankings, Citation analysis, Strategic Management, Academic impact, Strategy

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.

tipping, service quality, social norms, waiters, restaurants, the hospitality industry

Abstract:
Tipping is an important phenomenon, both because of its economic magnitude and because of the insights it suggests about economic behavior in general. It is closely related to several areas in economics, including labor economics, industrial organization, behavioral economics and public policy. Most economists, however, are not familiar with the scholarly research about tipping. The paper provides an opportunity to learn about the research on this fascinating subject, by summarizing and synthesizing both the theoretical and the empirical literature, and suggesting many original ideas, as well as promising topics for future research.

Tipping, social norms, behavioral economics, restaurants, tips, gratuities

Abstract:
Journal quality is a major consideration for authors, readers, and promotion and tenure committees. Unfortunately, no objective quality measure exists for most behavioral economics and socio-economics journals. To address this need, the number of articles that cited each journal in these fields was recorded for 2001-2005, 1996-2000, and 1996-2005. In all periods the Journal of Economic Behavior & Organization ranked first and the Journal of Economic Psychology second. In 2001-2005 the Journal of Socio-Economics ranked third. Data on abstract views and paper downloads in RePEc also suggests that JEBO ranks first, but JoEP and JSE now rank similarly.

Journal rankings, Citation analysis, Behavioral economics, Socio-economics, Economics and psychology

Abstract:
Tipping is a phenomenon that illustrates the importance of social norms and psychological reasons in motivating economic behavior. People tip because this is the social norm and disobeying norms results in psychological disutility. Tipping is also economically important: in the United States alone, millions of workers derive most of their income from tips, and annual tips amount to dozens of billions of dollars. Tipping is also prevalent in numerous other countries around the globe. While tipping has been studied extensively by psychologists, it received very little attention from economists. To encourage other economists to research this interesting phenomenon, I discuss the implications of tipping for several areas in economics: social economics, behavioral economics, labor economics, and economics of information/management strategy. I provide many ideas for future research both as part of the discussion and in a concluding section.

tipping, social-economics, behavioral-economics, social-norms, hospitality-industry, restaurants

Abstract:
The paper presents a model of the evolution of social norms. When a norm is costly to follow and people do not derive benefits from following it except for avoiding social disapproval, the norm erodes over time. Tip percentages, however, increased over the years, suggesting that people derive benefits from tipping, such as impressing others and improving their self-image as being generous and kind. The implications to the norm of not cooperating with new workers who accept lower wages are discussed; the model suggests that incumbent workers have reasons to follow this norm in addition to avoiding social disapproval.

Tipping, Social norms, Evolution, Conformist transmission, Conformity, Feelings, Emotions

Abstract:
In soccer penalty kicks, goalkeepers choose their action before they can clearly observe the kick direction. An analysis of 286 penalty kicks in top leagues and championships worldwide shows that given the probability distribution of kick direction, the optimal strategy for goalkeepers is to stay in the goal's center. Goalkeepers, however, almost always jump right or left. We propose the following explanation for this behavior: because the norm is to jump, norm theory (Kahneman and Miller, 1986) implies that a goal scored yields worse feelings for the goalkeeper following inaction (staying in the center) than following action (jumping), leading to a bias for action. The omission bias, a bias in favor of inaction, is reversed here because the norm here is reversed - to act rather than to choose inaction. The claim that jumping is the norm is supported by a second study, a survey conducted with 32 top professional goalkeepers. The seemingly biased decision making is particularly striking since the goalkeepers have huge incentives to make correct decisions, and it is a decision they encounter frequently. Finally, we discuss several implications of the action/omission bias for economics and management.

Decision Making, Uncertainty, Choice Behavior, Sport Psychology, Behavioral Economics

Abstract:
The first response time (henceforth FRT) of economics journals has increased over the last four decades from 2 months to 3-6 months. The optimal FRT, however, is not zero, because the FRT deters submission of mediocre papers to good journals and consequently saves valuable time of referees and editors. The change in the actual FRT is in the same direction as the change in the optimal FRT, which has increased because of the availability of research on the Internet prior to publication and because the costs of refereeing a paper have increased.

First response time, Academic publishing, Review process, Referees, Editorial delays, Refereeing, Economics journals, Reviewing

Abstract:
Previous studies about the academic publishing process consider the publication delay as starting from the submission to the publishing journal. This ignores the potential delay caused by rejections received from previous journals. Knowing how many times papers are submitted prior to publication is essential for evaluating the importance of different publication delays and the refereeing process cost, and can improve our decisions about if and how the review process should be altered, decisions that affect the productivity of economists and other scholars. Using numerical analysis and evidence on acceptance rates of various journals, I estimate that most manuscripts are submitted between three and six times prior to publication. This implies that the first response time (the time between submission and first editorial decision) is much more important than other parts of the publication delay, suggesting important policy implications for editors and referees.

academic publishing process, turnaround time, academic journals, review process, publication delay, rejections, first response time, peer-review

Abstract:
Recently many editors try to reduce the turnaround times of academic journals. Shorter turnaround times, however, will induce many additional submissions of low-quality papers, increasing significantly the workload of editors and referees, and the number of rejections prior to publication. I suggest several ideas how editors can shorten turnaround times and four ideas how they can still avoid frivolous submissions, thus improving the review process efficiency: higher submission fees; requiring authors to review papers in proportion to their submissions; using differential editorial delay - letting low-quality papers wait more; and banning papers from being submitted after a certain number of rejections.

Academic publishing, first response times, editorial process, review process, refereeing

Abstract:
The article presents a theory that I denote "Relative Thinking Theory," which claims that people consider relative differences and not only absolute differences when making various economics decisions, even in those cases where the rational model dictates that people should consider only absolute differences. The article reviews experimental evidence for this behavior, summarizing briefly several experiments I conducted, as well as some earlier related literature. It then discusses how we can think about relative thinking and formalize this behavior. Later, the article addresses several related questions: why do people exhibit relative thinking, whether it is beneficial to do so, and whether experience and education can change relative thinking. Finally, the article explains why firms seem to respond to relative thinking of consumers, and raises additional implications of relative thinking for economics and management.

Relative thinking, relative differences, behavioral decision making, behavioral economics, psychological economics, percentages, ratios, absolute differences, Weber's law

Abstract:
Tipping is a multi-billion-dollar phenomenon that standard economic models find hard to explain. I discuss several aspects of tipping and divide tipping to six different categories: reward-tipping, price-tipping, tipping-in-advance, bribery-tipping, holiday-tipping and gift-tipping, and discuss the economics of each category. Often tipping has economic justification, because it solves some inefficiency and increases welfare. Analyzing the potential reasons for tipping illustrates the importance of social norms and feelings (e.g., embarrassment and unfairness felt when one does not tip) in motivating economic behavior. Retaliatory behavior that workers sometimes exhibit towards non-tipping patrons is then discussed, and ideas for future research are proposed.

Tipping, social norms, feelings, consumer behavior, restaurants

Abstract:
Rewards for publications in good economics journals are very high, while submission fees and other monetary costs associated with submitting an existing manuscript are low. Consequently, the editorial delay (especially the first response time - the time until the first editorial decision), by postponing monetary rewards to publication, constitutes the major submission cost (from the author's perspective). Reducing the delay will induce many additional submissions of low-quality papers to good journals, increasing significantly the workload of editors and referees. Moreover, the rejection rate will increase and cause papers to be rejected more times prior to publication, offsetting at least some of the shorter first response times. As a result, the efforts of many editors to reduce the editorial delay, while attracting more submissions to their journals, may have adverse effects from a social perspective, and the optimal delay might be longer than the current average of four months.

Review process, academia, refereeing, research, publishing, publication process, first response times

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.

Tipping, social norms, social welfare, behavioral economics, psychology and economics, psychological economics

Abstract:
An important question about social norms is whether they are created to increase welfare; I address it by examining the characteristics of tipped and non-tipped occupations. Tipping prevalence is negatively correlated with worker's income and consumer's monitoring ability and positively with consumer's income and closeness between the worker and the consumer. The results refute a common belief that tipping exists to improve economic efficiency by lowering monitoring costs. Tipping, however, is more prevalent when consumers feel empathy and compassion for workers and want to show gratitude for good service, suggesting that tipping might increase welfare if welfare includes psychological utility.

Tipping, Service industries, social norms, social welfare, behavioral economics, feelings, emotions, psychological economics

Abstract:
We present an optimal-control model where tipping behavior creates reputation that affects future service. Tipping and reputation can evolve in four path prototypes: converging to an interior equilibrium; converging to minimum tips and reputation; and two prototypes that start differently but end with tips and reputation increasing indefinitely. Analyzing the interior equilibrium suggests that when reputation erodes more quickly (capturing lower patronage frequency), equilibrium reputation is lower. Interestingly, however, tips may be higher. Increasing the minimal tip raises tips by the same increase, and does not change reputation. A more patient customer leaves higher tips and reaches a higher reputation.

Tipping, Service Industry, Behavioral Economics, Social Norms, Service Quality, Optimal Control

Abstract:
Tipping is a phenomenon that has been studied for many years, but is receiving increased attention in recent years. The magnitude of tips is very large - in the US, for example, tips in the food industry alone amount to about $42 billion each year, and tips are given in many other establishments and countries, so annual worldwide tips are much higher than that. Millions of workers in the US alone derive most of their income from tips and tipping is prevalent in numerous countries and occupations. These are all good reasons to study tipping, but it is clear that tipping has created much interest also because it is puzzling from a theoretical perspective - why do people leave money voluntarily when service quality can no longer be changed?

The literature on tipping can be divided to two main areas. The first area can be termed understanding tipping behavior. This includes studies that try to understand why people tip, what affects their tipping behavior, why tipping is different across countries, etc. The second research area, which started to receive attention more recently, can be defined as tipping, firm strategy, and industrial organization. This part of the literature deals with the effect of tipping on firms and markets. For example, firms can sometimes choose between voluntary tipping and compulsory service charges - which one is better for the firm? How should the existence of tips affect optimal pricing by the firm? How should firms monitor workers and provide incentives to them when tipping exists? Why does tipping exist in some industries but not in others? Does tipping increase social welfare in industries in which it is the norm? All these questions belong to this second research area and demonstrate the close relationship of tipping to industrial organization and firm strategy. The purpose of this paper is to review and summarize the literature in this second area of research.

tipping, firm strategy, business strategy, industrial organization, social norms, norms, restaurants, waiters, servers, the service industry, tips, gratuities, strategy

Abstract:
The article presents a model of social norm evolution, which suggests how the increase in optimal and actual first response times (FRT) of economics journals can be related. When the optimal FRT and the norm about how much time refereeing should take increase, it seems that the existence of a norm increases the average refereeing time. The model suggests the surprising result that this is not necessarily true. I also discuss applications of the model in other contexts, differences in the optimal FRT between disciplines, the effects of the FRT on the tenure process, and strategic behavior of referees.

social norms, evolution, turnaround times, refereeing, review process

Abstract:
Consumers often have to decide whether to go to a remote store for a lower price. Only the absolute price difference between the stores should be relevant in this case, but several experiments showed that people exhibit relative thinking: they are affected also by the relative savings (relative to the good's price). This article analyzes the effects of this bias on firm strategy and market outcomes using a two-period game-theoretic model of location differentiation. Relative thinking causes consumers to make less effort to save a constant amount when they buy more expensive goods. In the location differentiation context this behavior can be modeled by consumers who behave as if their transportation costs are an increasing function of the good's price. This gives firms an additional incentive to raise prices, in order to increase the perceived transportation costs of consumers, which consequently softens competition and allows higher profits. Therefore, the response of firms to relative thinking raises prices and profits and reduces consumer surplus, in both periods. Total welfare is unchanged in the first period, and in the second period it is either unchanged or reduced, depending on whether the objective or subjective transportation costs are used to compute welfare. The main results of the model (firms' response to relative thinking increases prices and reduces consumer surplus) are likely to hold also in the context of search. The article also explains why relative thinking is a more appropriate term than mental accounting (which was often used before) to describe this behavior, and discusses why people might exhibit relative thinking.

Competitive Strategy, Relative Thinking, Pricing, Mental Accounting, Consumer Psychology, Consumer Attitudes & Behavior, Cognitive Processes, Behavioral Decision Making, Industrial Organization, Product Differentiation

Abstract:
This 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.

external incentives, tipping, monitoring, intrinsic motivation, reputation

Abstract:
A central question about tipping is whether people tip strategically, to improve future service, or only because tipping is a social norm. I present a theoretical model that incorporates psychological utility associated with tipping (because it is a social norm) and allows tipping to be motivated also by future service considerations. The model predicts that if future service is a reason for tipping, the sensitivity of tips to service quality should be higher for repeating customers than for non-repeating ones. Surveys of 597 restaurant customers are analysed and suggest that future service is not a reason for tipping.

Abstract:
The article examines the firm's choice of incentives when workers face additional incentives (external incentives) to those provided by the firm, such as building reputation that improves the workers' prospects with other employers, or satisfaction from working well. Surprisingly, the firm might find it optimal to increase the incentives it provides following an increase in external incentives. Even if the firm reduces its incentives, however, total incentives unambiguously increase, leading to higher effort and profits. This implies that firms should try to increase the external incentives that their workers face; I suggest several ways firms can do so.

Worker satisfaction, Personnel economics, External incentives, Worker reputation, Intrinsic motivation

Abstract:
The article examines a differentiated-products duopoly model where the firms make entry decisions to two markets and then choose prices. The effects of product differentiation and entry costs are analyzed in two games: with and without price discrimination between the markets. Allowing price discrimination encourages more entry and tends to reduce prices and profits and to increase consumer welfare in both markets. The model suggests that firms might be better off if they agree not to price discriminate between different markets. It also suggests that when the market is not a natural monopoly, regulators should consider the effects of universal service requirements on entry before adopting them, because entry might be discouraged by such requirements, leading to less competitive markets.

Cross-Market Price Constraints, Price Discrimination, Regulation, Product Differentiation, Entry, Duopoly, Universal Service Requirements