Bogota, Colombia—a city of 7 million people—has 22,000 registered buses and 25,000 bus owners, a recipe for mass-transit chaos. São Paulo, Brazil’s largest city, has 11,000 buses for 12 million people; Santiago, the capital of Chile, 9,000 buses for 5 million people (Exhibit 1). In Bogota, the number of passengers per bus is low, the owners barely cover their costs, and the process for allocating routes is a nightmare.

The mayor of Bogota, Enrique Peñalosa, has made overhauling the city’s mass-transit system one of his highest priorities. To that end, he has taken on entrenched, politically powerful transportation business interests that routinely paralyze the city when their demands for higher fares or less restrictive regulations aren’t met. This vast project to introduce new buses and routes is scheduled to cost $4 billion and to take 15 years to complete, but the first phase had already begun to be implemented by the end of the year 2000.

Buses are the only form of mass transit in Bogota. Before the coming of the new system, the local transport authority assigned bus routes to about 65 well-connected companies, or "affiliators," which in turn "affiliated" buses to cover the routes. The affiliators received...