The long-standing problem of the large overestimation of polymer polarizabilities in density-functional theory is reexamined and largely solved using an exact exchange method. We have built an accurate optimized effective potential as the sum of a fixed potential and a linear combination of basis sets based on our direct optimization method. This effective potential properly develops a linear counteracting depolarization field, and it significantly improves recent results from approximate optimized potentials. The controversial case of hydrogen chains is now correctly described and the failure of the local density approach is attributed to the large self-interaction error in systems with a non-integer number of electrons. (C) 2003 American Institute of Physics.