March 2, 2008

Naturalist Essay #1

The economics of bad tippers
If bad tippers are considered undesirable, why do servers continue to wait on them? Some customers are bad tippers regardless of the quality of service they receive, while other customers tip according to the perceived quality of service exchanged. In the market for food service, a server can’t know if a customer is a bad tipper or not, until it’s too late. The server, aware of this dynamic, will choose to provide the highest level of service because of a small cost-benefit analysis. The small cost of offering service in a uniform manner is worth the benefit of possibly receiving a tip based on quality of service.

Because there are people who are just bad tippers, the market for exchange between server and patron may evolve to decrease bad tips because servers will recognize who are bad tippers and refuse to engage in the market with them. This may drive bad tippers out of the market or convert them to better tippers. This is good for food service employees, but not necessarily for customers and certainly not for restaurant-owners who’re concerned with maximized revenue. Unfortunately for the servers, they are employees of the restaurants they represent, and the restaurant is interested more in the bottom line of people consuming food, than they are in the quality of tips their employees are earning. This desire to stimulate market share and to increase revenue may be the cause of such policies as
“the customer is always right.”

The dynamic of good service occurs despite the unilateral nature of the market, but along with managements imposition of policy to restrict the strength of servers, government interferes with things by lowering the minimum wage of tipped employees in relation to the minimum wage the rest of the country sees. Perhaps government is interested in fairness and sees a market failure in tipped employees being able to make a viable income irrespective to the level of education and training they have. Perhaps by choosing to side with the customers instead of the servers, restaurant management sees what they’re doing as a way of catering to the customer. But, do these interventions by management and government actually do anything to correct market failure, or do they actually serve to lower quality of employment and service; the sclerosis of the food service industry because of interventionism?

Because of government involvement, less talented and fewer ‘good’ servers will choose food service as a means of employment. Because of managerial policies that state
"the customer is always right," servers have even less power in relation to the customers and give bad tippers an incentive to complain or haggle over prices. The restaurant may adjust to lost revenue by lowering food costs and in turn lower quality of the food they offer. This harms not only servers, but also restaurant companies' reputations.

So, does tipping badly make sense? Perhaps in the short run, or to people who don’t value quality service and quality food. Perhaps more
differentiated products in the form of food service will occur: thus higher priced, higher quality restaurants. Or, perhaps this dynamic occurs in those higher scaled restaurants, too. Maybe the dynamics of power and prosperity can be applied to the food service industry and not just to nations!