As many cities in developing countries, jijiga town faces problems in obtaining water forrndomestic purposes. 81.3% of the households in jijiga town do not have private pipernconnection in their houses. Although jijiga water supply office is incurring a loss of 0.521rnbirr per one meter cubic of water produced, water supply is far below the existing waterrndemand in the toWIl.rnBased on cross-sectional data collected from 251 households in jijiga town and usingrncontingent valuation method, this study investigates and assesses the determinants ofrnhouseholds' willingness to pay and demand for improved water services in jijiga city whichrnwill provide an indication of the value that consumers place on improved water services.rnThe study will also provide guidance by enabling policy makers to design an appropriaternwater pricing structure.rnTwo empirical models adopted by th is study are Probit and OL5 models. The Probit modelrnis used to analyze responses from single bounded close ended questions. The OLS model isrnused to analyze responses from the open ended questions by identifying factors that affectrnmaximum WTP of the households for improved water service.rnThe result of the study shows that households spend 4.4% of their monthly income onrnwater, where households consume, on average only 132 liters per day. Households do notrnsatisfy the current water supply situation due to low quality, less quantity and unreliabilityrnof the sources. Among six main social services presented, majority of respondents give thernfirst priority to water services. The mean WTP for improved water services is found to 0.36rnBirr per jerican (a 20 liter backed) which is about 6.5 times more than the existingrnauthority's current tariff rate.rnBoth empirical models show that explanatolY variables, in come of the households, level ofrnsatisfaction of the household, ownership of the house, reliability of water source, primGlyrnwater source alld Respondents' perception about the quality of the existing water supplyrnsig nificantly affect the households' WTP for improved water service. Therefore, as a policyrnimplication, the study suggests consideration to be given such variables in designing andrnimplementing the policies of improved water supply service project.