Why Do We Tip Taxicab Drivers?

ISER Discussion Paper No. 738

11 Pages Posted: 21 May 2009

See all articles by David Flath

David Flath

Ritsumeikan University - Faculty of Economics

Date Written: May 13, 2009


The leading economic explanation for tipping - that is, explanation why the practice is socially beneficial, not why individuals leave tips even though it is not narrowly advantageous to them - is that it confers an incentive to provide personal services. This fits many instances in which tipping is common but does not fit the taxicab business very well. I propose a novel explanation for tipping that does fit the taxi case. It is that tipping amounts to Lindahl pricing of the services of vacant cabs (essentially, reduced waiting time), a local public good for taxi customers.

Keywords: tipping, taxicabs, Lindahl pricing, social norms

JEL Classification: D40, D82

Suggested Citation

Flath, David J., Why Do We Tip Taxicab Drivers? (May 13, 2009). ISER Discussion Paper No. 738, Available at SSRN: https://ssrn.com/abstract=1403812 or http://dx.doi.org/10.2139/ssrn.1403812

David J. Flath (Contact Author)

Ritsumeikan University - Faculty of Economics ( email )

1-1-1 Noji-Higashi
Kusatsu, Shiga 525-8577, Siga 525-8577

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