Anthony Gill, Political Science professor at the University of Washington featured on this episode of EconTalk episode speaking on the topic of tipping and why tipping persists as well as speaking on what it achieves despite there being no formal way of enforcing this norm. He goes into this topic in referring to a recent paper he's written on tipping. In it he answers the question of why tipping persists, despite the recent efforts that have been made to stop it. He also speaks on how the act of tipping continues to be a “healthy institution” as it has recently spread over to Uber in their new tipping feature.
Gill begins by bringing up the recent trend of no tipping, “About 5 years ago or so there was a trend in the restaurant industry toward the no-tip/living wage model of providing for the wait staff. And there's a spate of articles in popular journals, Market Watch and Fortune Magazine, Slate, that said tipping is going out of fashion: it's not pleasant for the customers and it would be more efficient for the restaurants just to have a flat fee for the service or to price it into the actual price you pay at the end leave less to the customer.” From there the conversation delves into and revolves around Gill’s paper, where he presents the three arguments he made in his paper. The first argument presented is that tipping helps solve a principal-agent problem, as it can serve as an incentive for good quality work and motivate the production of good work. “the restaurant manager cannot be on the floor monitoring the servers all the time, they need to have some kind of incentive to make sure that the servers are doing a good job and picking up on these subtle cues that the customers are giving.” With this the customer is in power as they have the ability to push for the type of service that they’d like.
The second argument that is discussed is that tipping allows for voluntary price discrimination. Although this argument may seem unusual Gill explains it in saying that “it allows the restaurant owner to shift the decision about how much to charge for service to the customer. Now, one would think that one would naturally not pay anything for that, because we always tend to want to pay the least amount for anything we can get. But, the fact that there's a norm--there's a suggested amount that we know in society, that 15% or 20%, which should, by the way, alleviate some of that uncertainty there--your parents should have taught you a good 15% tip is what you should leave; so that sounds pretty easy and now with the smartphones we all have our easy calculator for these things. But, if everybody knows this norm and we can shift that cost to the customer, it actually is very beneficial to the restaurant owner.” Stating that it is left up to the customer which in part is very beneficial to the owner.
The last argument that is discussed in why tipping continues to persist is that tipping helps to promote norms of trust in society. Gill states, “The last argument I make is on a more macro level and has to deal with social norms within society, and I think tipping helps to promote norms of trust in society that help promote anonymous trade in large market systems.”
Throughout the discussion Gill and Roberts dive into these three arguments as well as touching upon different industries and tipping as well as briefly touching upon Uber and their new tipping feature.
Please access the Econtalk site for the audio file or transcipt highlights, here.