Assessing willingness to pay

Two main methods exist for evaluating willingness to pay. The first, and direct method, uses rapid appraisal surveys assessing what consumers already pay for the item or service. This method uses consumers surveys and contingent valuation studies, which are bidding games asking people what they would be prepared to pay for improved services in the future. The second is an indirect method which aims at establishing what people living in similar circumstances to the target population are already paying for the item or service. These approaches have one common drawback in that they both depend on external resources to generate information, and are therefore subject to biases. In addition they are not truly participatory. A critique of these methodologies would be based on a range of biases linked to their 'external' nature: (1) hypothetical bias: individuals do not understand the services described by the interviewer; (2) strategic bias: respondents may thing they can influence the provision of services by not answering truthfully; and compliance bias: respondents may give answers to please the interviewer. To address these deficiencies, the UN Centre for Human Settlements (Habitat) has developed an approach which enable communities to assess their effective demand for water themselves through community self-surveys and community workshops.