Tip Suggestions and Service Efficiency

57 Pages Posted: 23 Oct 2023

See all articles by Guangli Zhang

Guangli Zhang

Washington University in St. Louis; Saint Louis University - Sinquefield Center for Applied Economic Research

Jeffrey Cross

Hamilton College - Economics Department

Multiple version iconThere are 2 versions of this paper

Abstract

That customers respond to tip suggestions is well-documented, but less is known about how changing tip suggestions impacts service quality. Leveraging the unique setting of New York City taxicabs, we document that increasing tip suggestions improve driver efficiency (e.g., shorter distance) only when total fares do not respond to changes in distance or duration. Further analyses reveal that drivers' responses are driven by higher returns to fast turnarounds rather than an effort to induce higher tip rates. Findings from this paper thus provide novel evidence that changes in tip suggestions can impact supply-side behavior, such as service efficiency. Our results show, however, that the effect will likely vary based on the market setting, particularly the pricing mechanisms and the opportunity cost of slower service.

Keywords: Tips, Suggestions, Taxi, Service Efficiency

Suggested Citation

Zhang, Guangli and Cross, Jeffrey, Tip Suggestions and Service Efficiency. Available at SSRN: https://ssrn.com/abstract=4610347 or http://dx.doi.org/10.2139/ssrn.4610347

Guangli Zhang

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Saint Louis University - Sinquefield Center for Applied Economic Research ( email )

3700 West Pine Mall Blvd. Fusz Hall, 358
St. Louis, MO 63103
United States

Jeffrey Cross (Contact Author)

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States

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