SubwayTalk

Abstract

A subway system, similar to a railway, airline, or other transportation system that requires infrastructure, is a network industry in that its value increases exponentially by each node added to the existing grid and a natural monopoly sometimes is required for a service provider to survive. For São Paulo, the leading city in Brazil, expansion of the subway system is badly needed to reduce the time people spend commuting, reduce pollution, and increase productivity in the economy as a whole. To induce qualified firms to bid on BOT contracts for new subway lines, the Brazilian government needs to allow natural monopolies in the subway system. To encourage the participation of international investors and lenders in financing additions to the system in today's volatile financial marketplace, Brazilian government guarantees and multilateral agency participation are required.