# _Summary of Findings from Cross-Country Panel_

The results of models 1 through 4 are summarized in table 9 and compared in figures 7 and 8. In figure 7 we see that models 1 and 3 both estimate that the lowest resource costs for administration are achieved at more than 50 percent and less than 90 percent decentralization of the financing responsibilities for administering road provision. Those of model 4, when preference costs determine resource costs recursively, estimate the optimal level of decentralization to be 100 percent. These results are quite robust and indicate that, when there is a high representation of local governments in the fiscal decisions concerning roads (measured in terms of their participation in the financing of road administration as a percentage of total administration costs) resource costs are lower. However, there seems to be a need for some presence of the central government (less than 10 percent share) to ensure that low costs are maintained. Such findings point to the need for coordination and regulation at the central level for some administrative functions.

Consistent with Oates' theory the relationship between resource costs and decentralization is highly non-linear and mostly concave (see figures 7 and 8), with the exception of construction costs. Thus, at higher levels of decentralization for maintenance and administration, local governments are more efficient producers and providers of road services. The country dummies are significant for all model specifications, indicating that there are strong country specific forces at work that capture the effect of decentralization on performance. This means that, the extent to which benefits of decentralization can be realized in terms of reduced costs of provision and improved quality of service, will depend on the conditions of the country in question.

Construction costs in all model specifications are not affected by the degree of decentralization, in a linear or non-linear form. This result may be due to the fact that decentralized levels of government are limited in their capacity and do not possess economies of scale. Further, construction is an activity that is very sensitive to geography as well as the efficiency of contracting-out arrangements. Since even countries with centralized provision of roads do use contracting out, it may be that this effect is confounded in the country specific effects and cannot be generalized at a crosscountry level. The case studies on Korea and Germany in the following sections demonstrate the country-independent effect of decentralization on unit costs of construction.

When the impact of various types of decentralization on preference costs using the cross-country panel is considered independently (model 2), the results show that only decentralization of maintenance bears a significant effect (decentralization of construction and administration are not significant). The coefficients with respect to maintenance are significant and negative initially (first order effect), implying that condition of roads improves with increasing degrees of decentralization. The second order effect for decentralized maintenance costs is positive and significant, indicating that the relationship between preference costs and maintenance decentralization is convex, _25_