An Economic and Pedagogical Defense of Gratuities

Journal of Private Enterprise, Forthcoming

23 Pages Posted: 15 Nov 2017 Last revised: 6 Jan 2018

See all articles by Anthony Gill

Anthony Gill

University of Washington - Department of Political Science; Baylor University

Date Written: November 10, 2017


A few upscale restaurants in the United States recently have ended the practice of tipping their wait staff, preferring a fixed labor cost method of compensation. This attempt to change this long-standing cultural practice presents a fascinating opportunity to explore a variety of economic concepts including principal-agent problems, gains-from-trade, price discrimination, and cultural institutions designed to build trust. I argue that tipping remains an economically efficient means of providing quality service wherein restaurant owners, wait staff, and customers all benefit in what can be a win-win-win situation. The norm of tipping also provides an excellent example to teach basic economic principles and foster classroom discussion.

Keywords: Gratuities, Tipping, Principal-Agent Problems, Gains-from-Trade, Price Discrimination, Social Norms

JEL Classification: A13, A20, J33

Suggested Citation

Gill, Anthony, An Economic and Pedagogical Defense of Gratuities (November 10, 2017). Journal of Private Enterprise, Forthcoming, Available at SSRN: or

Anthony Gill (Contact Author)

University of Washington - Department of Political Science ( email )

101 Gowen Hall
Box 353530
Seattle, WA 98195
United States


Baylor University

One Bear Place #97236
Baylor University
Waco, TX 76798
United States


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics