Incentives and service quality in the restaurant industry: the tipping-service puzzle

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Abstract:

Tipping is a significant economic activity (tips in the US food industry alone amount to about $42 billion annually) that was claimed to improve service quality and increase economic efficiency, because it gives incentives to provide excellent service, and therefore allows to avoid costly monitoring of workers. The article suggests that this common wisdom might be wrong. A simple model shows formally that tips can improve service only if they are sensitive enough to service quality. Empirical evidence suggests that tips are hardly affected by service quality. Nevertheless, rankings of service quality by customers are very high; the co-existence of these two findings is denoted 'the tipping-service puzzle,' and several possible explanations for it are offered.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840601131813

Affiliations: Department of Business Administration, Guilford Glazer School of Business and Management, Ben-Gurion University of the Negev, Beer Sheva 84105, Israel

Publication date: June 1, 2009

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