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

Azar, Ofer H. (2005): Incentives and Service Quality in the Restaurant Industry: The Tipping – Service Puzzle. Forthcoming in: Applied Economics

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.

• Item Type: MPRA Paper
• Institution: Ben-Gurion University of the Negev
• Language: English
• Keywords: Tipping; Service quality; Social norms; Waiters; Restaurants; The hospitality industry
• Subjects: 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 > D10 - General; L - Industrial Organization > L8 - Industry Studies: Services > L80 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M50 - General; A - General Economics and Teaching > A1 - General Economics > A12 - Relation of Economics to Other Disciplines

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