Search Conferences

Type in any word, words or author name. This searchs through the abstract title, keywords and abstract text and authors. You may search all conferences or just select one conference.

 All Conferences
 EMAC 2019 Annual Conference
 EMAC 2020 Annual Conference
 EMAC 2020 Regional Conference
 EMAC 2021 Annual Conference
 EMAC 2021 Regional Conference
 EMAC 2022 Annual
 EMAC 2022 Regional Conference

EMAC 2020 Annual Conference

Tips are Welcome! Integrating Tips into Contractor Compensation

Published: May 27, 2020


Mushegh Harutyunyan, Nazarbayev University GSB; Devavrat Purohit, Duke University


tipping; two-sided markets; contract design


In many two-sided markets, platforms allow a customer to leave a tip for the contractor who provided a service (e.g., food delivery). Since tips can constitute a significant part of the contractors’ earnings, some platforms have tried to integrate tips into overall contractor compensation. For example, DoorDash, a popular food delivery platform, has been using a minimum guaranteed payoff scheme, which allows DoorDash to pay the contractor a lower wage if the contractor receives a large tip. Interestingly, before switching to the guaranteed minimum payoff scheme in 2017, DoorDash used to pay contractors a fixed wage, which did not depend on the tips that the contractors received. In this paper, we build an analytical framework to analyze when and whether a platform should use the minimum guaranteed payoff scheme, and how it affects the contractors’ service quality and monetary payoff. We find that if the contractors are not very likely to be rewarded for high-quality service with a large tip, the platform is better off by paying fixed wages. However, if receiving a large tip is very likely, then the platform should use the minimum guaranteed payoff scheme. Under the guaranteed minimum payoff scheme, the contractors tend to earn a lower expected monetary payoff than when they are paid a fixed wage. Surprisingly, when the contractor’s likelihood of receiving a large tip increases, her expected monetary payoff may decrease.