POLICY **RESEARCH WORKING PAPER** 1258

# **Summary findings**

Bird examines the many faces of infrastructure decentralization: the costs and benefits, the government structure (constraint or variable?), the "polycentric" approachi, and how to make decentralization work (for whom?). He proposes basic principles and guidelines for policy design, for both small projects and large.

Broadly, these guidelines are summed up in a few propositions:

* In all countries, some critical infrastructure is provided through a decentralized political structure. Cuirant trends make that likely to be more true in the futire.

* Decentralization, however defined, in and of itself has no necessary implications for good or evil so far as infrastructure is concerned: its effects depend on the incentives various decisionmakers face.

* The key to ensuring that these incentives are conducive to "good" decisions (about design, siting, timing, finance, pricing, operation, maintenance, and use of infrastructure) is to ensure that those who made the decisions bear the financial (and political) consequences, as much as possible.

* Politically, this means that political leaders at all levels should be responsive and responsible to their constituents, and that those constituents are fully

informed about the consequences of all decisions. Making politicians bear the consequences of their own mistak-s is as close as one can get to a "hard" political budget constraint.

* Economically, it must be difficult for local residents to shift costs to nonresidents who do not receive benefits and to make Iccal decisionmakers ful!v responsible to their citizens for the use they make of revenues collected from them (through local taxes), to users of infrastructure (local or otherwise) for the use made of the reventies they contribute (through user charges of various sorts), and to taxpayers in general for the use made of any transfers (or subsidized loans) they receive.

* Administratively, what such a syscem requires is a clear set of "framework" laws (on local budgeting, financial reporting, taxation. contracting, dispute settlement, rules to be followed in designing user charges, and so on), as well as adequate institutional support for localities to operate in this environment.

To tne extent that these conditions are not met, the perverse incenti'.es that too often exist because of the strucolre and finance of the public sector in many countries will probably be exacerbated by the current tendency to decentralize more and more decisions in the public sector.

- - This paper a product of the Office of the Vice President, Development Econcnics is ont in a series of background papers prepared _for WorldDevelopment Report_ 1994 **onI** infrastructure. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Pltase contact the World _Development Report_ office, room T7-1 01, extenision 31393 (34 pages). February 1994.

_The Policy Resea ch Working Paper Series disseminates the findings of_ **_work_** _in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be used and cited accordingly. The findings, ;nterpretations, and conclusions are the authors'_ **_oun_** _and should not be atf-ibuted to the World Bank, its Executive Board of Directors, or any of its member countries._ Produced by the Policy Research Dissemination Center