Infrastructure investment in network industries : the role of incentive regulation and regulatory independence This paper finds that coherent regulatory policies can boost investment in network industries of OECD economies. Rate of return regulation is generally thought to result in overinvestment while incentive regulation is believed to entail underinvestment. Yet previous empirical work has generally found that the introduction of incentive regulation has not systematically changed investment in network industries. According to the theoretical literature regulatory uncertainty exposes both types of regimes to the danger of underinvestment. However regulatory uncertainty is arguably higher under rate of return regulation because investment decisions (what can be included in the rate base) are usually evaluated in a discretionary manner while firms operating under incentive regulation are less affected by this behaviour. In addition incentive regulation encourages investment in cost reducing technologies. Using Bayesian model averaging techniques this paper shows that incentive regulation implemented jointly with an independent sector regulator (indicating lower regulatory uncertainty) has a strong positive impact on investment in network industries. In addition lower barriers to entry are also found to encourage sectoral investment. These results support the importance of implementing policies in a coherent framework.