This paper develops a theory of regulatory enforcement in which enforcement and investments are jointly determined by economic fundamentals. Enforcement disciplines misreporting of investment outcomes, which reduces reporting biases as well as market discounts, benefiting entrepreneurship. However, a government is unable to commit to any long-term enforcement policy but discretionarily chooses an enforcement level that is positively associated with the market size. As a result, entrepreneurs collectively have incentives to overinvest to induce excessive enforcement as a public good. However, a large market requires them to coordinately invest more. If the economic environment is not conducive to the coordination, the market can be under-sized and under-regulated.