DP6233 Should We Really Expect More from Our Friends?

Author(s): Didier Laussel , Tanguy van Ypersele

Publication Date: April 2007

Keyword(s): Lobby , Political Economy , Strike

JEL(s): D7

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP6233.asp.asp

In the present paper, we analyze an original channel of interaction between politicians and lobbies i.e. the nuisance power of a lobby. Some lobbies are influencing public policies just because they are able to impact negatively the image of a politician. More particularly, we develop a setting in which unions may transmit some information to the voters about the quality of the government via a costly signal i.e. a strike. In our setting unions represent sectors of the economy. An incumbent government seeking reelection allocates a fixed budget among several unionized sectors. Strikes are costly and transmit information to voters about the quality of the government. The politician may have interest to distort the budget allocation away from the efficient one in order to maximize his/her probability of reelection. In most cases a hostile receive receives more than a neutral/friendly one.