The Economics of Tipping
The Economic Theories of Tipping
Economists explain tipping as a way to motivate service when monitoring is costly, and to smooth risks between customers and staff.
A tool for incentives.
Monitoring
Owners can’t watch every table, so customers monitor service and reward it.
Incentive
Tips give servers a reason to work hard.
Risk
Wages fluctuate with customers’ generosity, so servers bear demand risk.
Limits
Studies find that tip size correlates only weakly with service quality.
A busy night
A server hustles to earn higher tips during a rush.
Believing tips perfectly reward performance
They also reflect looks, mood and bias.
Key takeaways
- Tips help monitor service.
- They act as incentives.
- Servers bear risk.
- Correlation with quality is weak.
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