We study regulation of the auditing profession in a model where audit quality is unobservable and enforcing regulation is costly. The optimal audit standard falls short of the first-best audit quality, and is increasing in the riskiness of firms and in the amount of funding they seek. The model...

We test the rational economic model of marginal deterrence of law enforcement - i.e., the need for graduating the penalty to the severity of the crime. We combine individual-level data on sentence length for a representative sample of US inmates with proxies for maximum punishment and monitoring...