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Incentives and Service Quality in the Restaurant Industry: The Tipping - Service Puzzle

28 Pages Posted: 24 Nov 2006  

Ofer H. Azar

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

Abstract

Tipping is a significant economic activity (tips in the US food industry alone amount to about $42 billion annually) that was claimed to improve service quality and increase economic efficiency, because it gives incentives to provide excellent service, and therefore allows to avoid costly monitoring of workers. The article suggests that this common wisdom might be wrong. A simple model shows formally that tips can improve service only if they are sensitive enough to service quality. Empirical evidence suggests that tips are hardly affected by service quality. Nevertheless, rankings of service quality by customers are very high; the co-existence of these two findings is denoted "the tipping-service puzzle," and several possible explanations for it are offered.

Keywords: tipping, service quality, social norms, waiters, restaurants, the hospitality industry

JEL Classification: L80, Z13, M50, J30, D10, A12

Suggested Citation

Azar, Ofer H., Incentives and Service Quality in the Restaurant Industry: The Tipping - Service Puzzle. Applied Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=946951

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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