Frictionless gratitude: The digitization of tipping and its impact on social norms

Abstract

This paper studies how the digitization of payment changes tipping behavior and the evolution of tipping norms. We begin from Azar (2004) model of tipping as a costly social norm and extend it in two directions. First, we introduce observability into the utility from tipping, allowing visibility dependent motives such as social image and norm pressure to vary with the payment environment. Second, we extend the model from a continuous tipping choice to a digital choice architecture in which consumers select from a discrete menu of preset tipping options. These extensions help explain why digital tipping may not simply weaken tipping, but may instead affect the extensive and intensive margins differently. Lower observability can reduce the social pressure to tip, while discrete tip menus can eliminate small positive tips that would otherwise be chosen in a continuous setting. As a result, digitization can reduce tipping participation while increasing the average size of tips conditional on tipping. The paper therefore provides a framework for understanding how the move from face-to-face to digital payment environments can reshape tipping behavior and, over time, tipping norms.