Economics and Restaurant Gratuities: Determining Tip Rates

Abstract

IS tipping in restaurants simply a social norm where people tip on the basis of some rule of thumb (15% of bill size for example)? Using evidence gathered from surveys of nearly 700 diners in 7 Minnesota restaurants, it is argued that tipping is both a social norm and a means of rewarding good service. Survey evidence suggests that diners use rules of thumb as starting points and then vary gratuities on the basis of service just received, expected future service, whether they dine alone or with a group, alcohol consumption and location of the restaurant. Tipping may be viewed as a game played indirectly between diners in which each diner contemplates tipping, or not tipping, based on expectations of future service and the tipping behavior of other diners. Tipping is commonplace as long as people expect better service when they tip more and the expeaed payoff to tipping rises when more people tip, but rare otherwise. Neo-classical economics is quite successful in predicting tip size as long as diners view tipping as a pecuniary cost of buying service.

The norm of restaurant tipping

“…Previous empirical studies have confirmed this prediction (see in particular Bodvarsson and Gibson (1997) and Lynn and McCall (2000)). However, we now test for other features of an efficient tipping contract.…”

“…2 Previous empirical studies have also found that tip increases with service quality (see in particular Bodvarsson and Gibson (1997), and Lynn and McCall (2000)). a simple theoretical model for the determinants of tipping behavior and then investigate whether our observed tipping behavior is consistent with this model.…”

Determinants of Gratuity Size in the Czech Republic: Evidence from Four Inexpensive Restaurants in Brno

“…Lynn and Latané (1984) found no relation. Bodvarsson and Gibson (1997) found a positive relationship in five out of seven restaurants but a negative one in the two other restaurants; the relationship was positive on average but very weak over all seven restaurants. Lynn and McCall (2000) found a positive relationship but it was so weak that they doubted whether waiters and waitresses could really see it in their earnings.…”

“…For instance, etiquette guides suggest tipping 15 to 20 % of the bill size in the USA (Lynn, 2006). The empirical studies support this norm: Conlin, Lynn, and O'Donoghue (2003) reported the average gratuity to be 17.5 % of the bill, Lynn and Latané (1984) about 15.5 %, Bodvarsson and Gibson (1997) 15 % (but it differed among restaurants), Bodvarsson, Luksetich, and McDermott (2003) 14.3 %, Lynn, Jabbour, and Kim (2012) 10-16 %, and Harris (1995) about 14 %. However, some researchers found lower gratuities.…”

“…Several studies found out that regular patrons tip more than the one-time customers, see Lynn and Grassman (1990), Lynn and McCall (2000), Conlin, Lynn, and O'Donoghue (2003), Bodvarsson and Gibson (1994), Azar (2007b), and Azar (2010b). On the other hand, Bodvarsson and Gibson (1997) found the relationship statistically significant only in two of seven restaurants, and even there it was small. Hypothetical surveys found no relationship between patronage frequency and the gratuity size (Kahneman, Knetsch, andThaler, 1986, andAzar, 2010a).…”