An Economic and Pedagogical Defense of Gratuities

Journal of Private Enterprise, Forthcoming

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

Anthony Gill

University of Washington - Department of Political Science; Baylor University

Date Written: November 10, 2017

Abstract

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: https://ssrn.com/abstract=3070338 or http://dx.doi.org/10.2139/ssrn.3070338

Anthony Gill (Contact Author)

University of Washington - Department of Political Science ( email )

101 Gowen Hall
Box 353530
Seattle, WA 98195
United States

HOME PAGE: http://www.polisci.washington.edu/people/anthony-gill

Baylor University

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

HOME PAGE: http://www.baylorisr.org

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