Azar, Ofer H. and Tobol, Yossi (2006): Tipping as a strategic investment in service quality: An optimal-control analysis of repeated interactions in the service industry.
Download (205Kb) | Preview
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 end with tips and reputation increasing indefinitely. Analyzing the interior equilibrium suggests that when reputation erodes more quickly (capturing lower patronage frequency), equilibrium reputation is lower. Interestingly, however, tips may be higher. Increasing the minimal tip raises tips by the same increase, and does not change reputation. A more patient customer leaves higher tips and reaches a higher reputation.
|Item Type:||MPRA Paper|
|Institution:||Ben-Gurion University of the Negev and Bar-Ilan University|
|Original Title:||Tipping as a strategic investment in service quality: An optimal-control analysis of repeated interactions in the service industry|
|Keywords:||Tipping; Service Industry; Behavioral Economics; Social Norms; Service Quality|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Z - Other Special Topics > Z1 - Cultural Economics; Economic Sociology; Economic Anthropology > Z13 - Economic Sociology; Economic Anthropology; Social and Economic Stratification
D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory
L - Industrial Organization > L8 - Industry Studies: Services > L83 - Sports; Gambling; Recreation; Tourism
|Depositing User:||Ofer Azar|
|Date Deposited:||08. Aug 2007|
|Last Modified:||20. Feb 2013 10:20|
Azar, Ofer H., 2003. The implications of tipping for economics and management. International Journal of Social Economics 30 (10), 1084-1094. Azar, Ofer H., 2004a. Optimal monitoring with external incentives: the case of tipping. Southern Economic Journal 71 (1), 170-181. Azar, Ofer H., 2004b. What sustains social norms and how they evolve? The case of tipping. Journal of Economic Behavior and Organization 54 (1), 49-64. Azar, Ofer H., 2004c. The history of tipping – from sixteenth-century England to United States in the 1910s. Journal of Socio-Economics 33 (6), 745-764. Azar, Ofer H., 2005a. The social norm of tipping: does it improve social welfare? Journal of Economics 85 (2), 141-173. Azar, Ofer H., 2005b. Who do we tip and why? An empirical investigation. Applied Economics 37 (16), 1871-1879. Azar, Ofer H., 2006. Tipping motivations and behavior in the US and Israel: results of an experimental survey. Working paper, Ben-Gurion University of the Negev. Azar, Ofer H., 2007a. The social norm of tipping: a review. Journal of Applied Social Psychology 37 (2), 380-402. Azar, Ofer H., 2007b. Why pay extra? Tipping and the importance of social norms and feelings in economic theory. Journal of Socio-Economics 36 (2), 250-265. Azar, Ofer H., 2007c. Do people tip strategically, to improve future service? Theory and evidence. Canadian Journal of Economics 40 (2), 515-527. Azar, Ofer H., 2007d. Incentives and service quality in the restaurant industry: the tipping – service puzzle. Applied Economics (forthcoming). Barkan, Rachel, and Aviad Israeli, 2004. Testing servers' roles as experts and managers of tipping behaviour. Service Industries Journal 24 (6), 91-108. Ben-Zion, Uri, and Edi Karni, 1977. Tip payments and the quality of service. In Ashenfelter, O.C., Oates, W.E. (Eds.), Essays in Labor Market Analysis. Wiley: New York, 37-44. Bodvarsson, Orn B., and William A. Gibson, 1997. Economics and restaurant gratuities: determining tip rates. American Journal of Economics and Sociology 56 (2), 187-204. Bodvarsson, Orn B., and William A. Gibson, 1999. An economic approach to tips and service quality: results of a survey. The Social Science Journal, 36 (1), 137-147. Brenner, Mark L., 2001. Tipping for Success: Secrets for How to Get in and Get Great Service. Brenmark: Sherman Oaks, CA. Conlin, Michael, Michael Lynn, and Ted O’Donoghue, 2003. The social norm of restaurant tipping. Journal of Economic Behavior and Organization 52 (3), 297-321. Fehr, Ernst, and Simon Gachter, 2000. Fairness and retaliation: the economics of reciprocity. Journal of Economic Perspectives 14 (3), 159-181. Ginsberg, Debra, 2001. Waiting. HarperCollins: New York. Hemenway, David, 1993. Prices & Choices: Microeconomic Vignettes, 3rd ed. University Press of America: Lanham, MD. Jacob, Nancy L., and Alfred N. Page, 1980. Production, information costs and economic organization: the buyer monitoring case. American Economic Review 70 (3), 476-478. Kahneman, Daniel, Jack L. Knetsch, and Richard Thaler, 1986. Fairness as a constraint on profit seeking: entitlements in the market. American Economic Review 76 (4), 728-741. Lynn, Michael, 2006. Tipping in restaurants and around the globe: an interdisciplinary review. Forthcoming in Altman, M. (Ed.), Handbook of Contemporary Behavioral Economics: Foundations and Developments. M.E. Sharpe Publishers. Lynn, Michael, and Andrea Grassman, 1990. Restaurant tipping: an examination of three 'rational' explanations. Journal of Economic Psychology 11 (2), 169-181. Lynn, Michael, and Michael McCall, 2000a. Beyond gratitude and gratuity: a meta-analytic review of the predictors of restaurant tipping. Working paper, School of Hotel Administration, Cornell University. Lynn, Michael, and Michael McCall, 2000b. Gratitude and gratuity: a meta-analysis of research on the service-tipping relationship. Journal of Socio-Economics 29 (2), 203-214. Parrett, Matthew B., 2003. The Give and Take on Restaurant Tipping. Doctoral dissertation in Economics, Virginia Polytechnic Institute and State University: Blacksburg, VA. Parrett, Matt, 2006. An analysis of the determinants of tipping behavior: a laboratory experiment and evidence from restaurant tipping. Southern Economic Journal 73 (2), 489-514. Post, Peggy, 1997. Emily Post’s Etiquette, 16th ed. HarperCollins: New York. Ruffle, Bradley J., 1999. Gift giving with emotions. Journal of Economic Behavior and Organization 39 (4), 399-420. Schwartz, Zvi, 1997. The economics of tipping: tips, profits and the market's demand-supply equilibrium. Tourism Economics 3 (3), 265-279. Star, Nancy, 1988. The International Guide to Tipping. The Berkeley Publishing Group: New York. U.S. Census Bureau, 2006. Statistical Abstract of the United States, 2006 Edition. Available online at http://www.census.gov/prod/www/statistical-abstract.html. Wessels, Walter J., 1997. Minimum wages and tipped servers. Economic Inquiry 35 (2), 334-349.
Available Versions of this Item
- Tipping as a strategic investment in service quality: An optimal-control analysis of repeated interactions in the service industry. (deposited 08. Aug 2007) [Currently Displayed]