I wrote something here not long ago about the practice of tipping a barber -- at least, my barber. I didn't mean much by it except as a filler anecdote for a day when nothing very profound occurred to me. But the wonderful blog Marginal Revolution has got me thinking that there IS something important to consider about the practice of tipping people in service businesses with low barriers to entry. Consider, with MR, the Uber driver who typically has a tip jar. Through the app you are paying Uber, which is paying him, and through the tip jar you can pay him directly. Now: does the practice of the tip jar affect his income? In the traditional model, assuming perfect competition, etc., the answer is clearly "no." After all, assume it did. Assume, then, that the drivers started making more money per trip by making tip jars available. Word would get out, the business of becoming an Uber driver would be more appealing, and more people would do it. That would mean more ...
