Mitsunori YOSHIMURAAssistant ProfessorSchool of EngineeringNippon Bunri University1727, Ichigi, Oita,870-0397 JapanFax: +81-97-593-2071E-mail: yoshimuramt@nbu.ac.jpMakoto OKUMURAAssociate ProfessorGraduate School of EngineeringHiroshima University1-4-1, Kagamiyama, Higashi-Hiroshima,739-8527 JapanFax: +81-82-424-7827E-mail: mokmr@hiroshima-u.ac.jpAkimitsu ISOZAKIGraduate StudentGraduate School of EngineeringHiroshima University1-4-1, Kagamiyama, Higashi-Hiroshima,739-8527 JapanFax: +81-82-424-7849E-mail: isoaki@hiroshima-u.ac.jpAbstract: Public transportation service is essentially based on the scale economy, whichcomes from that cost of one vehicle operation can be divided by many passengers sharing thatservice. Therefore, it becomes very dicult to provide service in the area with low densityof demand. Recently, in order to provide transportation service in such low density areas,demand responsive bus(DRB) gathers attention and expectations. This paper discusses themarket externalities in DRB system in suburb and show what kind of fare arrangement willbe needed to realize the eciency of the market. At first, we analyze the optimal divisionof resources between two kinds of buses; demand responsive service and direct trunk lineservice. Without any fare intervention, people try to overuse of DRB because they neglect theexternal e ects by their calls. Then we try to estimate the amount of the externalities and giveinformation for the additional price for DRB.Key Words: Demand responsive bus, Bus operation, Externality1. INTRODUCTIONTraditionally, in order to connect a downtown and suburban housing complexes which locateaway from the trunk road, a lot of direct bus lines are often provided. However, when thepopulation decreases in the future, enough large volume of demand to maintain such directbus service for each housing complex cannot be secured; any revisions of bus lines becomeinevitable. Then it is plausible that bus lines would be revised as some combination of thefollowing services; direct trunk line bus which runs only along the trunk road, detour typebus service which goes around each housing complex while running at the trunk road, and thedemand responsive bus (DRB) which goes around the housing complex according to the callsof the users (Suzuki, 2001).The flexibility of the operation that DRB can skip running in the unnecessary part has beenconsidered as an advantage characteristic of DRB system (Akiyama, T. et al., 2000). However,if someone calls a DRB, the external negative e ects will occur, such as the increase of therequired on vehicle time for the users who have already got on the bus at the outer bus stops,and the increase of waiting time of the users at bus stops in downstream where delay of arrivaltime occurs. In order to operate DRB eciently, it is important to understand the characteristicof the operation form with paying attention to such negative external e ects of bus calls on theother users.