This case study focuses on a participatory local government investment program that came about in Chile in 1991 and has spread to an estimated one third of the country's 335 municipalities. The Fondo de Desarrollo Vecinal (Neighborhood Development Fund, FONDEVE) finances small infrastructure and neighborhood works projects. In some municipalities, the FONDEVE also finances environmental, cultural, and social projects, in addition to preparing feasibility studies and proposals for larger sectoral projects and presenting them to line ministries for funding. In the municipalities studied-Conchalâ, Rancagua, and Viöa del Mar-the average number of projects financed is 80 per year with an average budget of US$200,000 per year. Two conceptual concerns are central to analyzing the Conchalâ case. First, some challenges, setbacks, and opportunities involved in engendering participation are studied, focusing on the FONDEVE. Second, this case study presents counterevidence to what has become the standard dismal view on bureaucracies in developing countries. From Chile we have a public sector example where, instead of finding the symptoms of bureaucratic inefficiency and rent-seeking that we have come to expect, we encounter a local public administration endowed with highly motivated staff, moving toward more efficient public service delivery, and interested in undertaking innovative and sophisticated policy initiatives. This case study seeks to describe how the FONDEVE was conceived and initiated, to describe how it evolved, and to analyze what impacts its evolution had on relations between the local government and its citizens. To answer these questions, the study focuses on the following aspects of the FONDEVE: (1) project initiation and allocation of funds, (2) project evaluation and selection, (3) project implementation, and (4) program administration and management. The latter aspect seeks to underscore the impacts that the FONDEVE has had on the local public sector.