Curb Your Enthusiasm and The Economics of Tipping
Larry David Makes a Lot of Good Points!
What is a tip? And what are the economic lessons behind tips, tipping, and tipping culture? That’s what we are going to explore using several clips from Curb Your Enthusiasm to help us.
A tip, from a recent journal article on the economics of tipping, is “a payment from a customer to a service provider, but tips differ from other economic transactions in significant ways. The level of the tip is discretionary. It differs between customers and between occasions. The norm to tip exists in some countries and not in others. Where tipping exists, it occurs in some service occupations (like taxi drivers) but not in others (like bus drivers).”
Are you exhausted after reading that? (I am.)
Throughout the video at the bottom, we see that Larry David and others get into all sorts of sticky situations (that are also hilarious) with tipping, including:
Not knowing how to coordinate tips
Wondering who to tip and who not to tip
Questioning whether to pay more than the automatic tip
And more
Why do people tip?
A chart from the article linked above gives some insight. In the US, largely people tip because they think they are supposed to. That said, reasons for tipping differ dramatically across countries.
The Benefits of Tipping
Many benefits for tipping are claimed and here are a few:
More produced because of prices differences
If tipping allows a business to serve more customers than it would otherwise this is good for society. (On average, perhaps, an organization has a few big tippers, allowing them to serve those who might not be willing/able to tip as much.) This would cause an outcome similar to the benefits of price discrimination - where more is produced and therefore there is greater overall well-being. (Economists would say this increases total surplus - the sum of consumer and producer surplus.)
Tipping could mean better service
If those being tipped provide better service and/or work harder, then tipping could provide a benefit to society
People enjoy tipping and it makes them happy
This article lists more potential benefits.
The Drawbacks of Tipping
There can be several drawbacks from tipping. (More are discussed in the video below)
Tip confusion and overpaying
What is the right amount to tip? Should you tip when there is already an automatic gratuity? How should the level of service impact the tip? All of these questions can be confusing to figure out.
Discrimination
The economics of tipping article we linked to above also shares how people gave different tips based on race - and the differences are pretty dramatic.
Other research shows that beautiful people receive higher tips, meaning ugly people are discriminated against in tipping.
Effort expended thinking about how - or how much - to tip.
If someone is thinking about how much to tip instead of doing something productive, this is bad for society.
For more, check out the video
Many people in foreign countries are completely baffled at the tipping culture in the USA at all. It does seem odd - after taxes and tips, you often need to add 25% or more to the prices of any product - that just doesn’t happen in many parts of the world. But confusing or not - tipping is common in the US, with all the economic implications.
This video has some incredible scenes from Curb Your Enthusiasm that illustrate tipping issues along with further analysis. I hope you enjoy!