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      The tipping point: a mathematical model for the profit-driven abandonment of restaurant tipping

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          Abstract

          The custom of voluntarily tipping for services rendered has gone in and out of fashion in America since its introduction in the 19th century. Restaurant owners that ban tipping in their establishments often claim that social justice drives their decisions, but we show that rational profit-maximization may also justify the decisions. Here, we propose a conceptual model of restaurant competition for staff and customers, and we show that there exists a critical conventional tip rate at which restaurant owners should eliminate tipping to maximize profit. Because the conventional tip rate has been increasing steadily for the last several decades, our model suggests that restaurant owners may abandon tipping en masse when that critical tip rate is reached.

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          Most cited references 7

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          Social Norms and Economic Theory

           Jon Elster (1989)
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            What sustains social norms and how they evolve?

             Ofer H. Azar (2004)
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              The history of tipping—from sixteenth-century England to United States in the 1910s

               Ofer H. Azar (2004)
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                Author and article information

                Journal
                08 September 2017
                Article
                1710.06893

                http://arxiv.org/licenses/nonexclusive-distrib/1.0/

                Custom metadata
                14 pages, 5 figures
                q-fin.EC

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