them more flexible as to allow local governments to establish service levels that reflect actual demand.16 South Africa and the US both are efficient producers at very high levels of decentralization. In the United States, resource costs are very high (before normalizing for technology) but preference costs are lower than the mean level. The responsibility for construction works rests with counties, local governments and townships. With the loss of Federal funds (GRS funds), local governments are faced with major adjustments. They have to fund construction works essentially from already limited internal revenues, generally from shared motor fuel tax receipts and license fees from state governments, property tax revenues and appropriations from the general fund of local governments. Faced with these budgetary constraints, local governments seem to have improved their delivery of road services, as the USA is well below the cross-country average in terms of total costs of road service provision. To reduce the high level of resource costs, local governments should opt for cost reduction strategies, limiting construction service programs. To improve performance, local governments could merge into larger jurisdictions to capture back economies of scale and reduce unit costs. With the average township in the Midwest having only 40 miles of road, Walzer et al (1987) emphasized that this alternative certainly deserves attention. But a survey conducted in the Midwest showed that nearly 63 percent of the farmers thought local governments were efficient providers of road services (Walzer and McWilliams, 1989). They showed relatively strong support for managing the system via the current decentralized structures. More cooperation between townships and counties is an alternative to consolidation. Cooperation purchases of materials, sharing of specialized equipment's, and cooperation in large projects are examples of the kinds of efforts that can be considered to improve performance even further (to levels close to Germany for example).

Resource costs using the eight country experience are seen to be highly variable in the [0-50] percent decentralization range, and they decline systematically (with the exception of South Africa) as we move to the right from [50-100] degrees of decentralization, as seen in figure 2(b) This result is in line with Oates' hypothesis that initially the central government has economies of scale in managing the financing of construction works (perhaps as observed in more efficient centralized procurement and supervision systems) and that greater decentralization results at the beginning in loss of economies of scale resulting in cost increases. The observed declining of costs corroborates Oates' contention that there may be a switch in the resource cost curve. As for the preference costs curve, there is evidence for a downward slope, which implies an improvement in the condition of roads with increasing degrees of decentralization. But as we move to the right on the graph road condition worsens (as in the case of Colombia) and then improves again. Following Biehl's (1994) diversity argument, at higher levels of decentralization, local preferences may be expressed in terms of accepting poorer road

> 16 A more in-depth analysis of Germany's experience with decentralization and its performance in the road sector is in section seven.

16