Examining regulatory reform for bus operations in Latin America

Abstract

Governments in Latin American cities are pursuing regulatory reforms to address the negative externalities of informal public transportation service providers. This is achieved by regulatory actions that work to consolidate many small operators competing “in the market” into fewer larger companies competing “for the market.” This reform addresses 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 approaches and have achieved different levels of formalization. Under these cities’ new regulatory regimes, bus companies have consolidated and public authorities now rely on renegotiation of contracts instead of open rebidding. However, industry formalization increases costs, requiring public subsidy or higher fares, and puts financial pressure on the public sector. These results imply a continued instability in the regulatory cycle; without increased public sector capacity, it is possible that large, entrenched operators and increasing costs will create a new market opening for informal service.