When the squeakiest wheel gets the most oil: Exploiting one's nuisance power

In this paper, a lobby group or union may influence public policy because it is able, via a costly signal such as a boycott or a strike, to negatively impact the image of decision makers. The competence of a government is measured by its ability to do a lot with only a little money. Voters receive, through observing the level of public output, only a noisy signal of government's quality so that the lobby groups, which are better informed, may transmit to them more precise information about it.We show that when unions are unbiased, i.e. have no hostility against or sympathy for the incumbent government, strikes may occur only when the government is “bad”. Consequently, a strike in this case acts as a clear, though costly, signal (to the public) of an incompetent government.When some or all unions or lobby groups are biased against the incumbent government, we show that the possibility of strikes may distort the budget allocation away from the efficient one. Bad governments have a tendency to favor their political enemies while good governments favor their political enemies only when they are not overly biased.

► We propose an original channel of interaction between politicians and lobbyists or union leaders, i.e. their nuisance power. ► We assume an incumbent government seeking reelection, unions lobbying for public budgets and voters trying to assess the quality of the government. ► We show that when some unions are biases against the incumbent, (1) incompetent governments favor that lobby (2) competent government favor that lobby only when it is not too biases.