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ISSN: 1649-3877

Listed by: Cabells and EBSCO

Frequency: 1 online Volume per year

The Impact of Tipping on Firm Strategy and Market Outcomes

JSME Vol 4: 2008

Author(s): Ofer H. Azar (Department of Business Administration, Ben-Gurion University of the Negev, Israel)

Abstract:
Tipping is a social norm that is also a significant economic activity: tips in the US food
industry alone are estimated at $42 billion annually, and tipping is common in additional
occupations and countries. Tips are also the major source of income for millions of workers. In
addition, tipping is interesting also because it poses a challenge to traditional economic theory,
according to which non-repeating customers have no reason to tip once service has already been
provided. This article reviews the literature and offers additional ideas about the impact of tipping
on firm strategy and market outcomes. This literature covers questions such as how should the firm
monitor tipped employees? Are additional performance-based incentives needed when tipping
exists? Should the firm impose a compulsory service charge instead of tipping? Does tipping
increase social welfare? Why does tipping exist in some industries but not in others?

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