financing of maintenance operations. The abscissa measures performance in terms of the unit cost of maintenance in $ per km and the cost of bad condition of roads to the users also converted to $ per km. We overlay the concepts developed in section 2 in these figures to further demonstrate this result. A look at the two cost curves shows that there are almost no costs to decentralization of road maintenance from the road users perspectives for both the normalized (figure 3(b)) and non-normalized (figure 3(a)) costs. Preference costs decrease systematically the more decentralization advances. Resource costs are low at complete centralization for Brazil and the Philippines, but not for Indonesia. Resource costs rise at high levels of decentralization (between 30 and 50%), declining again to a value equivalent to that before decentralization. This observation supports Musgrave's allocative efficiency argument that local governments are more prone to tailor their budgets toward local preferences.

Taking preference and resource costs together, the total cost curve shows that the optimal level of decentralization for maintenance lies at two regions, between 0 and 30% and more than 80% fiscal decentralization. At these points resource costs are at their minimum and preference costs are declining. In the region to the right of 90% the savings from decentralization seem to be achieved at an increasing rate, and not at the expense of increasing preference costs (see South Africa and the USA in Table 1).

In summarizing the performance of countries in figures 3(a) and (b), we see the following: Argentina, Brazil and Philippines all are highly centralized in financing of their maintenance operations. The Philippines has the worst performance for this group of countries with resource costs well the comparator countries even after normalizing by per capita GNP. In Brazil, performance in terms of resource costs is good after normalizing by per capita GNP, but preference costs are higher than in Argentina, indicating that the road users are not getting as good road quality as in Argentina for about the same level of resource cost. To understand this outcome we need to look at Brazil's experience with decentralization. Throughout most of the 1980s, road service delivery and financial resources were concentrated in the hands of the central government but in 1988, the government initiated decentralizing financing and authority. Transferring responsibilities to municipalities and state road agencies has been a slow and resource intensive process since appropriate capacities first had to be built at these levels to establish adequate planning and maintenance operation systems (World Bank, 1994). In accord with our theoretical expectations, this has led to some cost efficiencies in Brazil, but the benefits to the users are yet to come.

The benefits of decentralized functional responsibility even in the presence of fiscal decentralization can specifically be seen in the case of Argentina. In Argentina, road maintenance operations are financed centrally, whereas, the responsibility for road maintenance works has traditionally rested with the provinces. Compared to Brazil, Argentina's long experience with functional decentralization has allowed more autonomy and resources for maintaining road networks. This explains potentially why preference costs are lower in Argentina than in Brazil, for the same level of resource costs.

18