The judicious placement of disconnecting switches is an efficient means to enhance the reliability of distribution networks. Aiming at optimizing the investment in these switches, this paper presents a mathematical programming-based model considering the installation of remote-controlled and manual switches at various locations in the distribution network. The proposed model not only yields the optimal location and type of switches in the main feeders but also specifies the optimal type of tie switches, i.e., backup switches at the reserve connection points. Incentive reliability regulation in the form of a reward-penalty scheme is incorporated into the proposed model to take the distribution service reliability worth into account realistically. In addition to this cost, the revenue lost due to energy undelivered during the distribution network faults is considered to determine the unreliability costs more accurately. In order to estimate such reliability-related costs, a novel reliability assessment technique is developed and integrated into the proposed switch optimization model. Formulated as an instance of mixed-integer linear programming, the proposed model is applied to a test distribution network, and the outcomes are investigated in detail.