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The Law and Economics of Tipping: The Laborer's Perspective

Authors
Disciplines
  • Economics

Abstract

The Law and Economics of Tipping: The Laborer's Perspective American Law & Economics Association Annual Meetings Year  Paper  The Law and Economics of Tipping: The Laborer’s Perspective Samuel Estreicher∗ Jonathan R. Nash† ∗New York University School of Law †Tulane Law School This working paper site is hosted by The Berkeley Electronic Press (bepress) and may not be commercially reproduced without the publisher’s permission. http://law.bepress.com/alea/14th/art54 Copyright c©2004 by the authors. Draft of April 30, 2004 Please do not cite or quote without permission The Law and Economics of Tipping: The Laborer’s Perspective Samuel Estreicher† Jonathan Remy Nash‡ The phenomenon of tipping service providers is seen to present a conundrum for standard economic theory. Economists presume that individuals act in their economic self-interest. Thus, individuals engage in transactions with one another when it is in both their economic self-interests to do so. But it is hard to see how tipping is in the tipper’s self-interest.1 Tipping is a mere custom; it is not ordinarily required by any contractual obligation, express or otherwise. Moreover, one generally tips only after the services for which the tip is offered have been fully delivered. One might think that repeat customers of the same service provider tip in order to ensure proper service the next time—i.e., they actually tip in advance for services to be rendered in the future. But studies show that individuals tip service providers even if it is a virtual certainty that they will never seek service from that service provider ever again.2 Some commentators have suggested that tipping allows customers to monitor directly service providers.3 This achieves two goals. First, it creates an incentive for service providers to provide quality service.4 Second, it allows for monitoring of service † Charles L. Denison Professor of Law and Director of the Center for Labor and Employment Law

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