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Licensed Unlicensed Requires Authentication Published by De Gruyter March 26, 2008

Strategic Behavior and Social Norms in Tipped Service Industries

Ofer H Azar

Abstract

Tipping is a multi-billion-dollar phenomenon that traditional economic theory finds hard to explain. Why do people leave money as tips when service has already been provided? Two main potential reasons are that tipping is a social norm, and a strategic behavior aimed to assure good future service. A game-theoretical model is developed which allows the analysis of how tipping behavior should depend on patronage frequency if strategic motivations affect tipping. Thus, the model provides predictions that can be combined with empirical data on tipping behavior to answer the fundamental question, why do people tip?

Published Online: 2008-3-26

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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