Some economists believe that social norms are created to improve welfare where the market fails. I show that tipping is such a norm, using a model in which a waiter chooses service quality and then a customer chooses the tip. The customer's utility depends on the social norm about tipping and feelings such as embarrassment and fairness. The equilibrium depends on the exact social norm: higher sensitivity of tips to service quality (according to the norm) yields higher service quality and social welfare. Surprisingly, high tips for low quality may also increase service quality and social welfare.

Tipping is an important economic phenomenon, involving about $47 billion a year in the US food industry alone, and trillions of dollars across different occupations and countries over the years. Moreover, tipping is a major source of income for millions of workers. This article discusses the implications of tipping for business strategy in the relevant industries. For example, firms can choose to impose a compulsory service charge in lieu of tipping - what are the advantages and disadvantages of doing so? How does tipping change the profit-maximizing level of investing in screening job applicants, training workers, monitoring them, and providing performance-based incentives by the firm? Can industries such as the music industry use tips (i.e., prices being voluntary and determined by the customers) as an alternative business model?

Tipping is an important phenomenon, both because of its economic magnitude and because of the insights it suggests about economic behavior in general. It is closely related to several areas in economics, including labor economics, industrial organization, behavioral economics and public policy. Most economists, however, are not familiar with the scholarly research about tipping. The paper provides an opportunity to learn about the research on this fascinating subject, by summarizing and synthesizing both the theoretical and the empirical literature, and suggesting many original ideas, as well as promising topics for future research.

Though the history of tipping can be traced to the Middle Ages, the practice did not become widespread until the late 19th century. Initially, Americans reviled the custom, branding it un-American and undemocratic. The opposition gradually faded and tipping became an American institution. From its beginnings in Europe to its development as a quintessentially American trait, this work provides a social history of tipping customs and how the United States became a nation of tippers.

From restaurants to cruise ships, casinos to country clubs, readers will be able to tip with confidence whether traveling internationally or traveling in the United States.

A new, counterintuitive theory for how social networks influence the spread of behavior New social movements, technologies, and public-health initiatives often struggle to take off, yet many diseases disperse rapidly without issue. Can the lessons learned from the viral diffusion of diseases improve the spread of beneficial behaviors and innovations? How Behavior Spreads presents over a decade of original research examining how changes in societal behavior—in voting, health, technology, and finance—occur and the ways social networks can be used to influence how they propagate. Damon Centola's startling findings show that the same conditions that accelerate the viral expansion of an epidemic unexpectedly inhibit the spread of behaviors. How Behavior Spreads is a must-read for anyone interested in how the theory of social networks can transform our world.