This study tries to measure the optimum size of local government (municipality and city) which will support the accomplishment of decentralization policy 's objectives. The result of this study will be beneficial to know how the reformation pattern toward local government in Indonesia should lie done. The regression result of translog and quadratic functions using cost per capita minimization approach shows the existence of economy of scale from the size of municipality/city?s population. Using maximization approach, it is also shown that local ,government expenditure is not efficient yet and has H01 supported the efforts to accomplish the desired development performance. With various regulations, the significant variable used in the measurement of optimum size is the number of population. The result of using minimization and maximization approaches show that the optimum size for local government is d@rent between municipality and city; among each kind of per capita expenditure, and across time. Generally the optimum size of population for local government such that per capita expenditure can be minimized and minimum size of population such that Regional GDP per capita can be increased are approximately two million people. The reality of local government's size, which in general is relatively small compared to the optimum and minimum measurement shows the inefficiency of local government expenditure, and its ineffectiveness to improve the welfare of society. Hence, local government fragmentation policy that has been done so far is actually worsening the accomplishment of decentralization policy's objectives.