Teaching "Tips": An Economic and Pedagogical Defense of Gratuities
A few upscale restaurants in the United States recently have ended the practice of tipping their wait staff, preferring a fixed labor cost method of compensation. This attempt to change this long-standing cultural practice presents a fascinating opportunity to explore a variety of economic concepts including principal-agent problems, gains-from-trade, price discrimination, and cultural institutions designed to build trust.
Professor Gill argues that tipping remains an economically efficient means of providing quality service wherein restaurant owners, wait staff, and customers all benefit in…
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