We present an optimal-control model where tipping behavior creates reputation that affects future service. Tipping and reputation can evolve in four path prototypes: converging to an interior equilibrium; converging to minimum tips and reputation; and two prototypes that start differently but...

An important question about social norms is whether they are created to increase welfare; I address it by examining the characteristics of tipped and non-tipped occupations. Tipping prevalence is negatively correlated with worker’s income and consumer’s monitoring ability and positively with...

Tipping illustrates the importance of social norms in motivating economic behavior. People tip because this is the social norm and disobeying norms results in social disapproval that creates emotional disutility. Tipping is also economically important: in the United States alone, millions of...

Millions of workers derive much of their income from tips and are subject to the “tipped minimum wage” that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service...

The paper presents a model of the evolution of social norms. When a norm is costly to follow and people do not derive benefits from following it except for avoiding social disapproval, the norm erodes over time. Tip percentages, however, increased over the years, suggesting that people derive...

Tipping is a multi-billion-dollar phenomenon that challenges the traditional assumption of selfish economic agents who have no feelings and do not care about social norms. This article reviews the early history of tipping and offers an economic analysis of different aspects of tipping. Using the...

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...

Tipping is an important phenomenon, both because of its economic magnitude and because of the insights it suggests about economic behavior in general. It is closely related to several areas in economics, including labor economics, industrial organization, social economics, behavioral economics,...

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...