The Inefficiency of Splitting the Bill

16 Pages Posted: 8 Jun 2004

See all articles by Uri Gneezy

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management

Hadas Yafe

Technion-Israel Institute of Technology - Faculty of Industrial Engineering & Management

Abstract

When agents are ascribed selfish motives, economic theory points to grave inefficiencies resulting from externalities. We study a restaurant setting in which groups of diners are faced with different ways of paying the bill. The two main manipulations are splitting the bill between the diners and having each pay individually. We find that subjects consume more when the cost is split, resulting in a substantial loss of efficiency. Diners prefer the individual pay to the inefficient split-bill method. When forced to play according to a less preferred set of rules, they minimize their individual losses by taking advantage of others.

Suggested Citation

Gneezy, Uri and Haruvy, Ernan and Yafe, Hadas, The Inefficiency of Splitting the Bill. Economic Journal, Vol. 114, No. 495, pp. 265-280, April 2004. Available at SSRN: https://ssrn.com/abstract=526826

Uri Gneezy (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Hadas Yafe

Technion-Israel Institute of Technology - Faculty of Industrial Engineering & Management

Technion City
Haifa 32000, Haifa 32000
Israel

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