The country studies also show, however, that the choice of which activities to decentralize depends on country specific situations. The local environment differs in many ways; historically, economically, politically, culturally, affecting the achievable level of efficiency with decentralization. Nonetheless, there are certain lessons to be learned depending on the type and degree of decentralization as was summarized above. In particular, we find that performance at various levels of decentralization depends on the structure of allocation of fiscal and functional responsibilities, essentially what we may refer to as the "incentive structure" needed for the govermnent unit to conduct the assigned work efficiently. Where the central government controls all the details of construction and maintenance works, tight or "over-control" is perhaps the desired option, if it can be implemented. The central government has economies of scale in production of roads and should do the planning and budgeting, and in poorer countries managing the hiring of labor and machinery. Fragmentation of the central government or what may be referred to as "under-control" of major activities may initially result in cost inefficiencies and poor conditions (see for example the experience of Indonesia). But once decentralization is under way, recognition of local realities, circumstances and local diversity is quite important. This is particularly crucial for construction, which is technology and resource intensive and also has the potential for serious externalities. Performance depends to a large extent on the degree to which the diversity and heterogeneity of the local government universe are recognized, essentially how far local governments are allowed to come up with their own set of responses to financing and conducting construction works.

The Colombian experience with decentralization may be mentioned again. The decentralization reform in Colombia has allowed local governments and municipalities to have greater decision-making powers with regard to planning, selection and budgeting of road projects and greater expenditure authority. Depending on the region, different government entities are responsible for conducting construction works and also financing of road projects varies. In oil-rich regions, royalties have constituted an important source of revenue for construction of roads. In fact, a World bank study shows that close to 300 municipios had their investment projects financed through royalties. In 1987 and 1988, 15 municipios receiving royalties spent 39 percent of the income on water and sewerage projects, 24 percent on roads and the rest on other services (World Bank, 1989:5). This fact supports the contention that when local authorities have expenditure as well as functional responsibility, they may set priorities in sectors other than roads and choose the appropriate level of road quality for their constituencies. In the coffee-growing region, for example, the quasi-public Federation of Coffee Growers plays an important role in shaping and financing rural development policy in terms of building roads and making infrastructure investments.

The importance of aligning fiscal responsibilities to functional ones is underscored for the case of road maintenance, a finding that supports the "souffle 31