September 1996 Decentralizing the responsibility for roads costs more at first, mostly through losses in economies of scale. But those losses may be outweighed by increases in efficiency when the locus of roadwork is closer to the people. Minimizing costs is often cited as essential for optimizing service delivery. Roads are the oldest, most important infrastructure services provided by governments. They require construction, rehabilitation, maintenance, and administration (planning, selection, and management). Various institutional arrangements - including the structure of decentralization - affect the degree to which costs can be minimized. Drawing on analyses of experiences with decentralized road provision in eight countries, a longitudinal analysis (over 25 years) of change in the Republic of Korea, and vertical and horizontal analysis across states and local governments in Germany, Humplick and Moini-Araghi found that the impact of decentralization varies depending on which aspect one is considering: the efficiency of producing road services or the impact on road users. Resource costs - the cost of providing roads ($/km) - are concave, increasing first and decreasing at later stages of decentralization. Preference costs - the costs to road users as a result of bad roads - are downward sloping, suggesting that road conditions improve as decentralization advances. In short, decentralization entails initial costs, mostly as losses in economies of scale. But those losses can be outweighed by increases in efficiency when the locus of roadwork is closer to the people. The advantages or limitations of decentralization are function-specific: * Maintenance functions are best provided locally. If both resource and preference costs are considered, local government should have more than 40 but less than 70 percent of fiscal responsibility. If only resource cost efficiencies are considered, there should be complete decentralization. * To minimize resource costs, construction should be either completely centralized or completely decentralized. The efficiency of construction is more sensitive to the degree of competition in award contracts than to the degree of decentralization. * Administrative activities are more efficiently provided by local units similar to local maintenance units. At early stages of decentralization, it is more costly to administer a growing number of road agents, making the optimal level more than 50 percent but less than 80 percent local fiscal responsibility. Exceptions to these results include the United States, where nearly all road functions are decentralized and operate efficiently. This paper - a product of the Environment, Infrastructure, and Agriculture Division, Policy Research Department - is part of a larger study in the Agriculture and Natural Resources Department to develop a strategy for rural development. The study is funded jointly by the Norwegian and Swiss Special Studies Trust Funds and by the Bank's Research Support Budget, under research project Decentralization, Fiscal Systems, and Rural Development (RPO 679-68).

The establishment of good governance is a major challenge for the developing world, along with the need to sustain the progress resulting from developmental efforts. Although there are numerous studies on the development and governance of emerging nations, few volumes make a serious effort to bring together these two critical concepts. International Development Governance combines the two concepts - development and governance - by examining the issues and problems faced by nations in their attempts to establish sustainable governance. This textbook also initiates discussions on the concept of development governance in an international context. The book fills the gap in existing literature by drawing upon the experience and expertise of scholars from a broad spectrum of knowledge. Their views explain the issues and problems with reference to a number of tools that could establish "development governance" and sustain it. The text offers in-depth examinations of developmental sectors, resulting in a textbook that will inspire future public officials, policy makers, and consultants to contribute to the betterment of life for citizens of developing countries.