The demand for improved water services is determined by a number of socio-economic andrndemographic factors and water attributes. Information on the demand side are relevant for policyrnpurposes such as tariff structure and the choices of appropriate water supply schemes. variousrnmethods of determining households' preference and willingness to pay for improved water servicesrnare used in developing countries.rn In this study both the contingent valuation survey (direct method) and the indirect (revealedrnpreference) methods are used to estimate households' willingness to pay for improvedwater servicesrnin the city of Addis Ababa, Ethiopia. The research was based on primary cross-sectional data fromrnsampled households of different locations in the city.rnIn the indirect method the binomial probit model was used to determine factors influencingrnhouseholds' decisions to connect to the piped water scheme. The CV approaches were utilised torninvestigate the determinants of households' willingness- to-pay for private connection and publicrntaps.rnThe mean WTP bids for private connections and public taps are well above the current subsidisedrntariff, 8.66 and 4.7 cents per baldi, respectively. The results of the study revealed that the uses ofrnthe two approaches can provide policy relevant information on the level and type of improvedwaterrnservices required by households and how they should be paid for. Household income, ownership ofrnhouse, age and education level are significant determinants of households' decisions to connect to the piped schemes. The significant variables influencing the WTP responses include income, education level and sex of the household head, household size, time for fetching water and household's attitude toward the responsibility of water provision. The ordered probit model used for estimating of WTP responses of the CVM is found to be a promising approach to predict the number of households who will use an improved system if various prices were charged and to derive demand schedules. And raising tariff with unconstrained supply increases consumer surplus, number of connecting households and revenue for water utility.