Economics and restaurant gratuities: determining tip rates

American Journal of Economics and Sociology, The,  April, 1997  by Orn B. Bodvarsson,  William A. Gibson

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Table 6 presents tip rate regressions for individual restaurants. The negative signs [TABULAR DATA FOR TABLE 6 OMITTED] associated with quantity per person (QTY/PERSON), change to positive if tables where only one or two food items are ordered are included. However, the variable is not significant.

V

Conclusions

We have found that an explanation of gratuities lies beyond the ability of neoclassical economics with its assumption of strict, myopic self-interest. Nevertheless, neo-classical theory is useful in predicting how much patrons will tip. Where practiced, tipping adheres to a rule of thumb as a starting point in the determination of how much of a tip to leave. Discretion allows the amount to be reflective of the value of service received. We conclude that tipping is a useful economic institution, but that its enforcement mechanism lies outside the realm of traditional economics.

This work is far from finished. The nature of tipping makes data collection by observation or by using official records difficult. With results obtained, new questions arise and a desire to conduct more exhaustive surveys has to be tempered as avoiding respondent reluctance is paramount. New surveys involving refined questions and different locations are very desirable. It is hoped that this beginning of work in the area of very informal arrangements that defy traditional economic theory will stimulate further efforts.

Notes

1. Cheung (1969) 67-68. Cheung does not elaborate.

2. Schotter (1981) 11. Schotter does not elaborate except to say that a "code" develops for what percentage to leave as a tip.

3. Goffman (1963a, 1963b) discusses nonverbal communication of individual attributes to others and the problems of individuals trying to pass themselves off as being something they are not.

4. While it is not clear when tipping began, it certainly predates income taxes. Tax-evasion incentives support gratuities, but do not explain them. Attempts at more rigorous collection of tip income by Canadian and American authorities have not had discernible impacts on restaurant tipping.

5. At banquets, little scope exists for customer specific service and the service is part of the formal, overall contract. In fast food restaurants, rigid standardization of food and service is the rule. Employees can be terminated for accepting gratuities. This may be in part to maintain uniformity of service. Table service restaurants are more flexible in both these dimensions. In the fast food case, servers may also ring in sales and a prohibition on the personal acceptance of money from customers reduces the scope for theft. As a rule, cashiers are not tipped.

6. For brevity only, we refer to servers of both sexes as waiters.

7. Menger (1988) 83-85.

8. Ibid., 87.

9. We should not be accused of economic hubris as in Davern and Eitzen (1995). Surveying the sociology literature for work on gratuities has not been fruitful.

10. Tipping is learned, social behavior. The emergence, existence and longevity of social institutions depends heavily on the socialization of individuals as discussed in Foss (1996).