Tipping has become an expected social norm at restaurants, in taxis and after haircuts, but its expansion to takeout and other service settings raises questions about whether the practice makes economic sense. Ward Farnsworth, a professor at the University of Texas school of law, and Saul Levmore at the University of Chicago law school, explored these questions in their new book, Should You Tip for Takeout? Solving the Puzzles of Everyday Life.
The economists argue that tipping traditionally serves a specific economic purpose: it allows customers to reward workers based on information that employers lack. A restaurant server's quality of service, a taxi driver's driving ability and a hairdresser's skill are all observable to customers but not fully visible to employers. This information gap justifies giving customers a role in determining worker pay through tips. By contrast, people do not typically tip fast-food cashiers, bus drivers or plumbers because customers lack special knowledge that their employers do not already possess. A fast-food company trains staff to perform identically and monitors their work; a bus company observes driver routes and distances traveled; and most plumbing problems are either fixed or not, with efficiency hidden from both customer and employer alike.
However, the traditional logic behind tipping has weakened over time. Businesses now request tips in situations where customers possess no special information about worker performance, such as at bakeries and coffee shops. Farnsworth and Levmore suggest that takeout places may be using tip requests as a way to raise prices without making the increase obvious on menus. If tipping were banned, base salaries would likely rise and menu prices would increase accordingly, they argue. Instead, tip invitations allow businesses to raise effective prices while making customers attribute the change to shifting cultural norms rather than intentional price increases.
The timing of tip requests also complicates the economic rationale. Asking for a tip before service is complete contradicts the idea that tips reward quality work already performed. Early tip requests might even incentivize workers to adjust their service based on whether customers appeared generous, the authors note. This reverses the intended function of tipping as post-performance evaluation.
Farnsworth and Levmore acknowledge that tipping customs vary significantly across cultures and time periods. In some societies, tipping is rare or considered insulting. Their economic theory fit American practice better two decades ago than today, as tip requests have expanded into situations where the original economic logic does not apply. They conclude that while takeout tipping lacks economic justification as a custom, once tipping becomes entrenched through widespread practice, customers effectively consent to it as part of doing business. The authors suggest treating such norms as implicit bargains: customers either accept the established rules or choose not to patronise the business.
For American consumers making spending decisions, understanding that tip requests at unfamiliar venues represent genuine price increases rather than voluntary gratuities can help clarify the true cost of purchases before deciding whether and where to spend money.