August 15, 2005
Tip or Service Charge?

The NYT reports that some upscale restaurants are considering replacing voluntary tips with a service charge. Some of that service charge may be diverted to the kitchen staff, which doesn’t please the waiters.

Messing with the system of tips may not be worth the trouble. Diners like to have some control over their service. Having worked my way through college as a waiter at a good restaurant, I realize that the tip paid to the waiter is only the tip of the iceberg. That initial tip paid the waiter may support an underlying system of market arrangements, or what others might call extortion. It creates a system of naturally evolved incentives and disincentives that efficiently deliver food from the kitchen to the diner’s table. The tip paid the waiter may be used by the waiter to tip others. Want your food hot and cooked in a timely manner? Better tip the person in the kitchen who has control over that. Want your tables clean and the bread and water attended to? Better tip the busboy. Want to serve the tables where the big spenders sit? Better tip the maitre d’.

Posted by Ralph R. Frasca at 09:45 AM in Economics  ·  TrackBack (0)

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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