Economic Competition between Professional Bodies: The Case of Auditing

Posted: 14 Mar 2001

See all articles by Paul V. Dunmore

Paul V. Dunmore

Haim Falk

The Technion, Israel Institute of Technology

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Abstract

Building on Romano's analysis of the U.S. securities regulatory regime, we model competition between professional auditing associations. We show that such competition is an effective substitute for government regulation, providing an efficient means for auditors to signal their service quality. Competition is likely to lead to stability in the market for auditing services, with neither a "race to the top" nor a "race to the bottom." Monopoly rents are unlikely to be earned by auditors or their professional organizations, and government intervention can be limited to ensuring that the professional organization's disciplinary actions are costly enough to be effective.

Keywords: Auditing, professional organizations, regulation, signaling

JEL Classification: K22, L13, L51, L84, M41

Suggested Citation

Dunmore, Paul and Falk, Haim, Economic Competition between Professional Bodies: The Case of Auditing. Forthcoming in American Law and Economics Review. Available at SSRN: https://ssrn.com/abstract=260908

Haim Falk

The Technion, Israel Institute of Technology ( email )

Faculty of Industrial Engineering & Management
Haifa 32000
ISRAEL
+972 4 829 4419 (Phone)

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