This paper analyzes the contractual model of public transportation in Bogota based on the effects of moral hazard and adverse selection. The emphasis is given to the rules of operation and how these can affect the system's quality. It is analyzed based on the effort made by the concessionaire and whether they are efficient or not. First, it is shown that efficient concessionaires have incentives to pretend to have higher costs in a perfect information contract, which implies higher costs for the district. Then, I analyze the moral hazard problem and show that the district should warrant higher payments to guarantee that the firms undertake the effort. Finally, I study the imperfect information contract where the most economical contract is the one that provides effort only for the efficient agent. Hidden action and hidden characteristics generate higher costs for the principal that depend on the observed quality and type of the agent. In any case, under specific parameters over operator's costs, the district offers a contract where the concessionaire does not exert effort.
