TITLE:
Restaurant Tipping and Economic Efficiency in the Restaurant Market: An Economic Theoretical Analysis
AUTHORS:
Tin-Chun Lin
KEYWORDS:
Restaurant Tipping, Economic Efficiency, Economic Inefficiency, Deadweight Loss
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.5,
October
27,
2020
ABSTRACT: In this research, we investigated an interesting and
important issue: whether restaurant tipping would lead to economic efficiency or
inefficiency in the restaurant market. We applied the theory of consumer choice
to link restaurant tipping and consumer behavior. According to our economic theoretical
analysis, we concluded that restaurant tipping does discourage consumer demand for
restaurant meals, and hence leads to a substitution effect. The presence of a substitution means that well-being has been
lost due to the substitution effect of a price-distorting tip, resulting in economic
inefficiency in the restaurant market.