Abstract

Governments in Latin American cities are pursuing regulatory reforms to address the negative externalities of informal bus service. This is achieved by consolidating many small operators competing “in the market” into fewer larger companies competing “for the market”.  This reform addresses the problems in the previous phase of the regulatory cycle, but requires a larger role for public authorities. The cities of Bogotá, Santiago, and Mexico City took different and have achieved different levels of formalization, but under the new regimes bus companies have consolidated and public authorities have relied on renegotiation of contracts instead of open rebidding. In addition, formalization increases costs, requiring public subsidy and higher fares, putting financial pressure on the public sector. These results imply a continued instability in the regulatory cycle; without increased public sector capacity it is possible large entrenched operators and increasing costs will create an opening for informal service.