ECON: The Tip: A Reward, But for Whom?

From: Chris Rasch (
Date: Tue Feb 20 2001 - 04:49:14 MST

Despite the recent court decisions against Napster, free music file
sharing (and eventually software, images, film, and anything else that
can be digitized) will likely continue to grow, given the difficulty of
controlling de-centralized P2P systems like Gnutella and Freenet.
According to Dolfsma, gross revenues for U.S. "recordables" in 1996
were about $12.3 billion. See ( How Will The Music Industry Weather
the Globalization Storm Wilfred Dolfsma, First Monday,

Given this likely reality, it might be useful to consider another social
institution where people freely given money: tipping. According to
this article, approximately $20 billion was spent on restaurant tips in
1998. Why do people give so much money they don't have to? How readily
will this behavior translate into the online world?

The Tip: A Reward, But For Whom?
Dated: February 24, 1999.

Many uncertainties surround the dining experience, but one thing is
sure. At the end of the meal, the diner, barring a near-nuclear
catastrophe, will leave a tip. Last year, North American diners left
an estimated $20-billion on the table. In the United States, the
average tip was 16.7 percent of the total bill. The Canadian
Restaurant and Foodservices Association does not keep a corresponding
figure, but Canadians are generally thought to tip slightly less, in
part because of higher food prices and sales taxes. In Manhattan, the
standard tip is closer to 20 percent at a good restaurant. Regardless
of the amount, the gesture may be mass delusion.

In theory, a tip is a reward for good service. But many restaurants
pool tips - putting them into one pot and evenly dividing them at the
end of the night - which means that the reward intended for a
particular server is shared among many. Under these circumstances, a
tip is a little like a declaration of love delivered over a public
address system.

And, in any case, the message may say more about the sender than the
receiver. A tip, social scientists seem to be discovering, has less to
do with the diner's opinion of the service than with his opinion of
himself, his need of approval or his desire to please the waiter. The
tip, in other words, is a puzzle. No one quite knows why diners tip in
the first place, or whether tipping serves any economic purpose.

One economic argument for tipping is that it gives restaurants extra
managers at no cost. Because a restaurant cannot possibly monitor its
staff as efficiently and accurately as the people being served, this
function has been delegated to diners. Tipping also allows restaurants
to keep part of the cost of labour off the bill. "It's a very
attractive way to support their labour force without having to pay
that cash up front," said Jayne Drennan, a faculty member in the food
and beverage management program of Toronto's George Brown School of
Hospitality and Tourism. The prospect of a good tip motivates the
staff to provide good service in the present, and the diner who leaves
a generous tip helps ensure good service in the future. But tipping is
not only, or even primarily, an economic transaction. It is also a
social event, and as researchers have discovered, a very complex one,
at times bordering on the perverse.

Michael Lynn, an associate professor of consumer behaviour at the
Cornell University School of Hotel Administration, has been studying
tipping since 1980, and although he readily admits that many mysteries
remain, one thing is fairly clear: The quality of the service has very
little to do with the size of the tip. "Bill size allows me to explain
70 per cent of the variability in tip amount," he said. "Less than 2
percent of the variability can be explained by how the diner rates the
service." Lynn and others have found that the social norm of tipping
dictates that a more or less predictable tip will be left, depending
on the size of the bill. "The primary motivation for tipping is social
approval," Lynn said "It's expected."

The peculiarities of the diner-server relationship also confound the
economic model. Researchers have found that, in most cases, diners do
not feel that they are judging the waiter, but that the waiter is
judging them. They tip to please. Theoretically, the tip is a weapon,
but as a social scientist named Leo Crespi found when he studied
tipping in the 1940s, "most people do not have the requisite nerve."
This may be a North American problem. Some researchers have theorized
that the tip is a way to defuse anxiety associated with the unequal
server-diner relationship, and a way of fending off envy and ill
will. In a country dedicated to the principle of social equality, this
anxiety takes an acute form. Indeed, over the years, many social
critics have attacked tipping as an insult to our society's core
values, a repellent holdover from the days when aristocrats would
fling coins at their servants.

In The Itching Palm, a 1916 creed against the practice, William
R. Scott argued that "Tipping equals Flunkism, the author said, is
"The willingness to be servile for a consideration," and he called it
"democracy's deadliest foe." Social unease may be the waiter's friend,
however. In one well-known 1984 experiment, researchers found that a
waitress who touched her customers, whether male or female, on the
hand or shoulder when asking if the meal was all right, raised her
tips to 14 per cent, from 11 per cent. Sophisticated dinners may
cringe, but waiter introductions also put green on the table. So does
crouching at the table when taking an order or, if the server is a
women, putting a smiley face on the bill. For male waiters, the smiley
face cuts tips.

Some responses are simply weird. It is well known that credit card
customers tip more lavishly than cash customers, but experiments have
shown that cash customers who are presented with a bill on a tray
embossed with credit card logos will leave more than those who receive
a plain tray. The waiter does not always win. It is well documented
that tip size decreases with the size of the party, which is why many
restaurants impose a mandatory service charge for groups of six or
more. According to the NPD Group, which does research on consumer
marketing, single dinners leave an average tip of 19.7 per cent. That
number drops to 16.9 per cent for two people, 15.2 per cent for three,
15.9 per cent for four and 13.2 per cent for five.

Researchers have theorized that a phenomenon known as diffusion of
responsibility may account for the downward slide. Just as a lone
witness is more likely to help an accident victim than a witness who
is part of a group, the diner in a group may hold back a bit on the
tip, expecting others to pick up the slack. Or it may be that diners
feel that the amount of attention given to each member of the party
diminishes with the size of the group. Even if tips were a purely
economic message sent from diner to waiter, the widespread practice of
pooling tips jams the signal. In what is known as a "pooled house,"
which includes almost all fine-dining restaurants in New York and many
in such cities as Toronto, Montreal and Vancouver, a tip does not
usually go directly into the pocket of the waiter.

Instead, all cash and credit-card tips are added up at the end of the
evening and distributed to waiters, runners and busboys according to a
point system. A point is the total tip pool divided by the total hours
worked by the pool participants. Each worker receives an amount equal
to hours worked multiplied by the point amount, or the fraction of a
point assigned to a particular job category. In a nonpooled house,
seating can become a serious source of friction, and service can
become balkanized, with waiters at one station refusing to help
customers outside their area. In theory, workers in a pooled house
will be eager to help each other.

"I like the pool system better," said Belinda Behne, who has been a
waitress at Gotham Bar and Grill for five years. "I realize that the
old maverick style of waiter doesn't like it, but the pool means that
no one waiter gets hurt, and you can rely on a steady income."

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