panel; jurisdictions are time periods within a single country where there have been changes in local government participation in financing road works--the case of Korea; and jurisdictions are state and local governments within a single country--the case of Germany.

The cross-country panel is taken from the International Road Federation (IRF)<sup>2</sup> 1 Statistics, which provide yearly an extraordinarily rich set of information on roads disaggregated by level of government. We are able to distinguish between central and local government expenditures, where the latter encompasses all levels of government (local and regional governments) other than the central government. From this data set, it has been possible to develop a continuos measure of decentralization disaggregated by level and type of road activity. Additional information includes data on costs also by level and type of activity and the condition of the network. The panels are not balanced because some of the observations are missing. We arrive at a total of 262 observations for measuring the effect of different levels of decentralization on resource and preference costs.

A cross-country panel was selected because it has pre- and post- decentralization data for a variety of countries which decentralized or centralized over time (e.g., Korea, Indonesia, and Colombia) as well as countries which did not change their levels of decentralization over the period of analysis (e.g., Switzerland, Germany, and Tanzania). The pre-decentralization data serves as a control for the post-decentralization data so that the impact of decentralization as a continuous variable can be estimated. This data set is employed to verify the validity of the double-cost hidden level of effort approach to measuring the impact of decentralization on performance. With the country level panel we determine whether there are optimal levels of decentralization for provision of roads and estimate empirically the impact of decentralization on road performance. Table 1 displays the information contained in the cross-country data set.

The data set for Korea is also derived from the IRF source although the analysis is longitudinal and covers a wider period of time, from 1968-1992. With this data set we are able to measure the country-independent impact of switches between levels of decentralization on resource and preference costs. In the 25 year period analyzed, the level of fiscal decentralization across road functions in Korea fluctuated as shown in Table 2. Korea was selected as a case study because it has a high level of decentralized construction and maintenance, but a low level of decentralized administration of road functions, in a fiscal sense.

The analysis of the impact of decentralization in Germany relies on state and local government panel data which was obtained from eight German states (BadenWuerttemberg, Hessen, Bayern, Niedersachsen, SchleswigHolstein, Nordrheinwestfalen, Saarland and Rheinlandpfalz). Data on roads disaggregated by activity was gathered by requesting that the responsible road authorities at the state and local levels provide

> 21 We recognize that the quality of the IRF statistics is questionable and rely on the time series data for Korea and the original data collection we conducted in Germany to qualify whatever findings we have from the cross-country panel.

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