Wednesday, May 3, 2017

Why don't restaurants give rejected food to hungry servers?

When you order a meal and what you receive isn't what you expected, you can either suffer through it or send it back. If food gets returned, many restaurants have rules to prevent the cooks and servers from eating it.  On its face, this seems inefficient, as good food is discarded.

QUESTION: Why do restaurants have these rules? (Hint:  incentives, Chapter 1)

ANSWER:  To answer the question we consider all the benefits and costs that vary with the consequence of the rule (Chapter 3).
  • The obvious benefit of giving food to hungry servers and cooks is that you increase the attractiveness of working at the restaurant, which allows you to reduce their wages (the "compensating differentials" of Chapter 9).  
  • However, the hidden cost of giving rejected food to the staff is that you create incentives for hungry staff members to deliberately mess up orders so they can get free food.  
If a restaurant has rules preventing staff from eating rejected food, one could infer that the costs are bigger than the benefits, and that the agency cost (Chapter 21) of trying to control this kind of perverse behavior are large.

HT:  Jake

Copyright 2017, Froeb (if the publishers let me, I will stick this question into the fifth edition)

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