The Social Norm of Tipping: Does it Improve Social Welfare?

40 Pages Posted: 6 Apr 2005

See all articles by Ofer H. Azar

Ofer H. Azar

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Abstract

Some economists believe that social norms are created to improve welfare where the market fails. I show that tipping is such a norm, using a model in which a waiter chooses service quality and then a customer chooses the tip. The customer's utility depends on the social norm about tipping and feelings such as embarrassment and fairness. The equilibrium depends on the exact social norm: higher sensitivity of tips to service quality (according to the norm) yields higher service quality and social welfare. Surprisingly, high tips for low quality may also increase service quality and social welfare.

Keywords: Tipping, social norms, social welfare, behavioral economics, psychology and economics, psychological economics

JEL Classification: Z13, J30, D11

Suggested Citation

Azar, Ofer H., The Social Norm of Tipping: Does it Improve Social Welfare?. Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=694281

Ofer H. Azar (Contact Author)

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva, 84105
Israel
+972 8 6472675 (Phone)
+972 8 6477691 (Fax)

HOME PAGE: http://www.oferazar.com

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