-of-return regulation is generally thought to result in over investment, while incentive regulation is believed to entail underinvestment …. Yet, previous empirical work has generally found that the introduction of incentive regulation has not systematically …-of-return regulation because investment decisions (what can be included in the rate base) are usually evaluated in a discretionary manner …

Based on an idiosyncratic reading of the literature I propose intermediate (rather than tight or soft) regulation for … balancing investment incentives with allocative efficiency and competition objectives. Intermediate regulation is compatible … with incentive regulation and helps lengthening the regulatory commitment period necessary for incentives. However, such …