mentioned above that theory has dealt very little with these issues, some interesting insights can be found in the empirical literature.

On the topic of new investment versus maintenance expenditures, little empirical evidence is available. While the theory discussed previously suggests a bias toward new investments (Rioja, 2003; Kalaitzidakis and Kalyvitis, 2004), there is an obvious need to generate adequate data to assess this issue. Ideally, this means data on both infrastructure investments and maintenance expenditures, of the type used in Kalaitzidakis and Kalyvitis (2005) for Canada. However, this would generate compatibility issue with the growing emphasis on physical indicators.

How much maintenance spending is necessary to maintain the integrity of networks given demand projections, is probably best addressed in practice by economicengineering models that allow identifying maintenance expenditure standards. Fay and Morrison (2007) mention standards of 2% of the replacement cost of capital for electricity, roads and rail, 3% for water and sanitation and 8% for mobile and fixed telephone lines. These expenditures should then be added to projected investment needs. However, as mentioned above, while these magnitudes are well known, politicians often face incentives that lead them to distort maintenance needs downwards. Empirical evaluations of how these distortions are affected by the characteristics of the political game and by the nature of the relationships between policy makers and financing agencies would be a first step towards understanding how the right incentives can be created.

In the context of developing countries and physical infrastructure indicators, maintenance can be alternatively approached from the quality side. Hulten (1996) uses an effectiveness index of infrastructure in cross-country estimations and reports an impact more than seven times larger than that of public capital. Systematic assessment of the quality of services could be included in microeconomic surveys, as is already partially the case in ICAs. Databases such as ROCKS in the case of road construction (see Deichmann, Buys and Wheeler, 2006), can then be used to estimate the cost of maintenance expenditures corresponding to given quality improvements and compare them to the cost of new investments.

As for empirical insights about the sequencing of reforms supporting infrastructure investment, they are mostly found in studies looking at some form of private sector involvement in these sectors. In essence, researchers have been concerned with the timing of restructuring measures (before or after privatization), the implementation of regulation and, if so, the institutional aspects of it, and the potential introduction of competition.

The common wisdom seems to be that when some form of privatization is considered, restructuring should be undertaken prior to its implementation, a regulatory framework should be put in place and supported by institutional arrangements including transparency and independence of the agencies in charge, and competition should be introduced whenever the characteristics of the activity make this possible (World Bank, 2004). Although reviewing the vast literature dealing with the evaluation of privatization and with the impact of regulatory governance on 34