EXECUTIVE SUMMARY 1

TABLE OF CONTENTS 3

1. INTRODUCTION 4

2. REGULATION AND INNOVATION 6

  2.1 A NUANCED RELATIONSHIP 6

  2.2 WHEN DOES REGULATION ENHANCE INNOVATION? 7

3. CHOOSING THE RIGHT ECONOMIC ACTIVITIES 10

  3.1 MARKET POWER 10

  3.2 CO-ORDINATION FAILURES 12

  3.3 EXTERNALITIES AND RISK 13

  3.4 SHIFTING THE METRICS OF COMPETITION 14

  3.5 ENSURING INNOVATION PATHWAYS 15

  3.6 LESSONS FOR POLICY MAKERS 17

4. REGULATORY DESIGN 19

  4.1 REGULATORY STRINGENCY 19

  4.2 TRANSITION PLANNING 21

  4.3 FLEXIBILITY AND CERTAINTY 23

  4.4 REGULATORY GUIDANCE AND DIALOGUE 24

5. HOW TO GET THERE: IMPROVING ABILITY AND INCENTIVES 26

  5.1 ABILITY AND INCENTIVES OF THE REGULATORS 26

  5.2 ABILITY AND INCENTIVES OF THE REGULATED FIRMS 28

6. CONCLUSION 30

ABOUT CERRE 31

ABOUT THE AUTHORS 32