The Implications of Tipping for Economics and Management

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.

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

JEL Classification: Z13, J30, J00, D19, M00, L00, L80, A12