Doctoral Dissertation Research: The "Give" and "Take" on Restaurant Tipping

Virginia Polytechnic Institute And State University, Blacksburg VA

Investigators

Abstract

Using both laboratory experiments and survey data collected from several Richmond, Virginia restaurants, this study explores various aspects of restaurant tipping, along with their implications for both the consumer (the "give") and the server (the "take"). Several consumer-side issues will be tackled. For example, what impact does the size of the table have on a customer's incentive to tip? Standard economic theory predicts an inverse relationship between tip size and table size, but does this relationship hold empirically? Also, what impact does the composition of the table have on a customer's incentive to tip? For example, do women tip more than men? There is a good deal of research in economics that finds that women are more generous than men, but does this also hold true in a tipping situation, especially when men tip in the presence of women? Finally, this study examines the recent (June 2002) Supreme Court ruling in United States v. Fior d'Italia, Inc., which allows the IRS to estimate a restaurant's tip income based on credit card receipts. On the server side, this study investigates the effect of tip pooling, a method of server remuneration in which servers share all of their tips equally among each other, on server effort. Is service under a standard tipping arrangement, whereby the server retains, for himself, all of his customers' tips, superior to service under a tip pooling arrangement? Here, standard economic theory says that service under a standard tipping arrangement should exceed that under a tip pooling arrangement. The issues that are examined in this study have several important implications. First, this study should help to explain why some restaurants add an automatic service charge onto bills at large tables, while others do not; secondly, it provides insight into why some restaurants are more likely than others to use tip pooling as their method of server remuneration. Third, this study will provide evidence of the effect of the Supreme Court ruling in United States v. Fior d'Italia, Inc., which allows the IRS to estimate a restaurant's tip income based on credit card receipts. A statement by the National Restaurant Association said that "Seven out of 10 restaurants are small businesses, many of which operate with slim margins. Quite frankly, this decision could mean the difference between a restaurant staying in business or closing its doors." Finally, there is a fairly sizeable literature in economics on sex differences, which analyzes both whether, and why, men behave differently than women. This study will add to that literature by exploring sex differences in tipping behavior.