Why do we leave tips for some service but not for others?


It has become customary at most places to leave 15-20% of the total bill as a tip for good service at restaurants. But it is illegal to tip some service providers. For instance, the clerk at your immigration office.
Why this distinction?

If we go back, tipping in restaurants originated to induce better service. Restaurant owners are willing to reward attentive and courteous servers, since better service leads to repeat customers. And the reward incentivizes waiters to put in extra effort to improve the dining experience.

One way to achieve this is that owners monitor their staff and reward them accordingly. However, this is painstakingly difficult. An elegant solution devised by restaurant owners was to reduce the price of food slightly and leave the onus to the diners by announcing that they leave a bit extra if they are pleased with the service. Diners are perfectly positioned to monitor service quality.

From a diners perspective his willingness to pay remains the same as earlier as the reduction of list price of the meal compensates for the tip.
They are at an advantage since competition in restaurant industry makes it difficult for servers to exploit less generous customers by withholding quality service. Customers can always choose a different place to dine, the next time.

Now imagine you go to your Immigration and Checkpoint Office (ICA) to renew your residency permit. ICA is what you would call a monopoly. If tipping was made customary, due to lack of competition, clerks would refuse to serve you without a generous tip. Thus tipping is illegal in services without market competition.



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