estimates with 95% confidence. The main difference in estimated results is with respect to decentralization of construction (see figure 11). The 95 percent confidence interval around the estimates from the cross-country panel shows losses of economies of scale are as possible as efficiency gains from increased decentralization of construction activities. The estimates using the Korea data set, which are completely included within the confidence band of the cross-country panel estimates, shows that there are benefits to be gained after a level of decentralization of 30 percent, with the optimal being at 100 percent. It was mentioned earlier that the country conditions are especially strong for the case of construction, as there are effects such as geography and network configuration as well the as the efficiency of contracting out procedures that affect the unit costs of construction. Once you remove country-specific effects (as in the Korea case) we see that one can see efficiency gains even with decentralized construction.

The total effect of decentralization as shown in figure 12, is non-linear as predicted by Oates for both the cross-country and Korea data sets. The Korea data set demonstrates the increasing costs of decentralization after a level of about 80 percent. Oates has suggested that decentralization may result in losses of economies of scale; these losses may indeed outweigh the gains, as empirically shown for the case of Korea. However, this particular effect may be country specific.

It is important to see the position of Korea in the global scale of decentralized road provision to understand these result. In table 1, we see that the level of decentralization of administration functions for roads in Korea is on average 29 percent, a point in figure 9, just before the efficiency gains with respect to increasing degrees of decentralization start to show up. With respect to maintenance Korea has an average level of decentralization (taken across a period of 10 years) of 56 percent, a point in figure 10 where there are high gains from decentralized provision of maintenance. On the construction side, Korea's average is 64 percent, a point in figure 11, where the increase in unit costs of construction just begirds to escalate as a function of degree of decentralization as predicted by the estimates from the cross-country panel.

To verify the robustness of the findings from the Korea data set, after controlling for country-specific fixed effects, we use another case study from Germany, as presented in the next section.

# **5. Decentralization of Road Functions in Germany**

In this section we study the impact of decentralization on road performance for Germany. We use two measures of decentralization: (a) fiscal decentralization as was defined and used in sections 3 and 4 as the percent local government financing of road works; and (b) spatial decentralization, which serves as a measure of depth of decentralization, and defined as the number of local governments per state GDP. Due to data availability, we also expand the concept of performance. On the input side, the size of the road network under the jurisdiction of state and local governments is used as a 32