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Spring 2018

ISSN 0890-913X

Volume 33, Number 1

Categories: Spring 2018 | Tipping | Manners and customs

An Economic and Pedagogical Defense of Gratuities

Anthony Gill, Political Science University of Washington

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TheJournalofPrivateEnterprise33(1),2018,79–102AnEconomicandPedagogicalDefenseofGratuitiesAnthonyGillPoliticalScienceUniversityofWashington______________________________________________________AbstractAfewupscalerestaurantsintheUnitedStateshaverecentlyendedthepracticeoftippingtheirwaitstaff,preferringafixed-labor-costmethodofcompensation.Thisattempttochangealongstandingculturalpracticepresentsafascinatingopportunitytoexploreeconomicconceptsincludingprincipal-agentproblems,gainsfromtrade,pricediscrimination,andculturalinstitutionsdesignedtobuildtrust.Iarguethattippingremainsaneconomicallyefficientwaytoprovidequalityservice:restaurantowners,waitstaff,andcustomersallbenefit.Thenormoftippingalsoprovidesanexcellentexampletoteachbasiceconomicprinciplestostudentsandfosterclassroomdiscussion.______________________________________________________JELCodes:A13,A20,J33Keywords:gratuities,tipping,principal-agentproblems,gainsfromtrade,pricediscrimination,socialnormsI.IntroductionAnewtrendissweepingtherestaurantindustry.Itisn’tthelatestIndiapalealeoravocadotoast.Norisitanovelwaytomakereservationswithasmartphone.Rather,itisamovementtoeliminatetherelianceongratuitiesasapartialformofcompensationforwaitstaff.Instead,someestablishmentsnowrelyonafixed“livingwage.”RestaurantssuchasIvar’sSalmonHouseinSeattle,BarMarcoinPittsburgh,ChezPanisseinBerkeley,andmorethanadozenofDannyMeyer’ssit-downrestaurantsinNewYorkCityhavejumpedonthe“nogratuities”bandwagon(Tu2015;Terenzio2015;Erbentraut2015;Passy2014).Besidestheostensibleconcernforthewaitstaff’sfinancialwell-being,otherreasonsrestaurateurshavegivenforthispolicychangeincludecustomerpreference(Erbentraut2015);avoidingthemanagerialhassleofdividinggratuitiesamongotherworkersintheestablishment(Passy2014);happieremployees(Terenzio2015);andevenconcernsovermitigatingsexismandracism(Terenzio2015).Journalisticaccountsofrestaurants

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Title	An Economic and Pedagogical Defense of Gratuities
Authors/Creators:	Anthony Gill, Political Science University of Washington
Year:	2018
Volume:	33
Number:	1
Pages:	79 - 102
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	gratuities, tipping, principal-agent problems, gains from trade, price discrimination, social norms

Citation:
Gill, Anthony / 2018. "An Economic and Pedagogical Defense of Gratuities." The Journal of Private Enterprise, 33(1): 79-102.