Tipping in crises: Evidence from Chicago taxi passengers during COVID-19.

Abstract

In early 2020, the novel coronavirus (COVID-19) spread to the United States and upended normal life. Using trip-level data on over 17 million taxi rides taken in Chicago from 2018–2021, I document how tipping behavior changed during the COVID-19 pandemic. I find that the average non-zero tip as a percent of the taxi fare increased 2 percentage points, or roughly 10%. Meanwhile, the likelihood that a passenger left a tip at all declined by roughly 5 percentage points, down from a pre-pandemic likelihood of 95%. My preferred specification suggests that the effect on the intensive margin dominates that in the extensive margin, leading to an aggregate increase in tipping generosity during the pandemic. I leverage granularity in the data to explore the mechanisms behind these trends and offer two explanations consistent with the data. First, passengers responded to the major economic shocks of the pandemic – unemployment and savings overhangs – by varying their tipping rates accordingly. Second, passengers internalized the increased risk of COVID-19 infection as an additional cost for taxi drivers and increased their tips as compensation. My analysis testifies to the sustainability of tipping in times of crises and offers theoretical insight into what drives tipping behavior.