- Tipping is a common but contentious practice that has been debated for centuries. In this article, Anthony Gill defends tipping as a beneficial and rational institution that enhances the functioning of free markets and society.
- If you want to learn more about the economic logic and social value of tipping, and how to deal with its challenges and drawbacks, read on and follow the rest of the series.
Table of Contents
Recommendation
Good service is good business all around, and so tipping can be useful in certain places, like restaurants, where service can vary. But now gratuities extend to areas in which no service exists, making the tips seem undeserved and the recipients, greedy. In this scholarly essay, professor Anthony Gill reveals tipping’s relationship to the principal–agent economic problem, in which one party – such as a restaurateur – depends on the work of an agent – a food server. Gill’s research will prove handy the next time you drop change into a jar at your coffee shop.
Take-Aways
- Tipping stirs debate among customers.
- Tipping appears to be the most effective means of addressing the principal–agent problem.
- Certain aspects of tipping frustrate consumers.
Summary
Tipping stirs debate among customers.
The practice of tipping has its proponents and detractors. The former argue that it motivates good service; the latter find it to be extortionate and, at times, misapplied in certain contexts. Many deem the extension of the practice to the digital realm of payment services awkward or inappropriate.
“While much of this frustration is understandable and shared by me…I will defend the cultural norm of tipping as an ingenious institution that helps free markets work better.”
Some restaurant luminaries had even proposed a “living wage” for restaurant workers to replace gratuities and address the tipping controversy, but the movement failed.
Tipping appears to be the most effective means of addressing the principal–agent problem.
The principal–agent issue is a cornerstone of microeconomics. An individual, the principal, hires someone else, the agent, to complete a job. Workers may have less motivation to work efficiently if the principal pays them hourly. Or an agent may execute the job sloppily if he or she is paid by piece-work. The principal would not want to oversee the agent’s performance, otherwise she could complete the task herself. The issue involves a proper delegation of work, thus making the principal–agent problem widespread in today’s economy.
Enter tipping as an efficacious means to solve the problem in several service arenas. Full-service restaurants are a prime example: Owners want to profit by having diners enjoy their experience and spread the good word. While the owner/manager can control the quality of the food and the atmosphere, the service experience presents a challenge. Table service is a skilled job, requiring the server to understand and satisfy the whims of the customer, who may at times prove difficult to manage.
“A diner who receives an incorrect order or sub-par food may not tip. As such, waiters have an incentive to monitor what goes on in the kitchen.”
Gratuities motivate the server to perform well in expectation of a larger tip, and waitstaff behave accordingly. Good service leads to repeat customers and better employment prospects for service workers. Tips drive a better quality of food, as the server seeks to ensure that the meal satisfies each diner, lest the server receive a bad tip for serving mediocre food.
Without tips, servers may experience less motivation to ensure good service. A living wage would not incentivize waitstaff to work harder, as all workers would receive the same pay, regardless of their work effort or the kinds of customers they served. Gratuities, on the other hand, motivate the best servers to work the busiest shifts, when the prospects for good earnings abound. The practice of tipping inspires servers to perform their best to earn the most or, for those lacking the wherewithal to perform, to leave the service business.
Certain aspects of tipping frustrate consumers.
Tipping appears to work best in job environments that suffer most acutely from the principal–agent problem. Customers tip the coiffeur to ensure a good look and the food delivery person to ensure prompt delivery, yet do not do so for the department store clerk or the trash hauler.
“The new point-of-sale payment devices becoming increasingly common in restaurants adds social pressure to tipping.”
“Tip-creep,” the practice of requesting gratuities in new areas, has become a source of vexation for many. Tipping at a self-service food establishment serves no purpose, as there is no principal–agent problem to solve. A digital check-out display with a gratuity option in the presence of an employee makes tipping appear unreasonable. Tipping in advance of the service provided – for example, when ordering delivery online – defeats the purpose of a gratuity.
About the Author
Anthony Gill is professor of political economy at the University of Washington.
Genres
Economics, Culture, Sociology, Business, Psychology, History, Ethics, Law, Journalism, Education
Review
The article is a defense of the cultural norm of tipping, which is often criticized by consumers, social critics, and even some restaurateurs. The author, Anthony Gill, argues that tipping is an ingenious institution that helps free markets work better by solving principal-agent problems, leveraging price discrimination, and instilling social values. He also points out some of the challenges and drawbacks of tipping, such as the spread of tipping to new domains, the social pressure created by digital payment methods, and the effects of public policy and norm changes on the practice. He promises to explore these issues in more depth in two subsequent articles.
The author uses economic concepts and examples to support his claims, such as the principal-agent problem, gains-from-trade, price discrimination, and cultural institutions. He explains how tipping aligns the incentives of the service provider and the customer, allowing for a more efficient and satisfactory exchange. He also shows how tipping enables customers to pay according to their preferences and circumstances, and how it fosters trust and cooperation among market participants. He acknowledges that tipping is not perfect and that it may have some negative consequences, such as creating resentment, confusion, or exploitation. However, he suggests that these problems can be mitigated by adjusting the norm or the policy, rather than abolishing tipping altogether.
The article is well-written, informative, and persuasive. It provides a balanced and nuanced perspective on a controversial topic, and challenges some of the common arguments against tipping. It also raises some interesting questions and implications for further research and discussion. The author demonstrates his expertise and knowledge of the subject matter, and uses relevant and credible sources to back up his points. The article is engaging and accessible to a general audience, as it uses clear and simple language, concrete examples, and humor. The article is also well-structured and organized, with a clear introduction, body, and conclusion.