The use of irrigation water for smallholder farmers where the challenges of climate variability and climate change has an adverse effect are many: it helps to realize the household food and domestic demand, reducing poverty and improving the employment opportunities. Understanding the importance of irrigation farming in the area, the government of Ethiopia has developed the Koga irrigation project for contributing the sustainable livelihood of the households in Mecha district. However, there are problems with the irrigation project that concerns the government. The problems include accumulation of silt in the irrigation canal and drainage systems, water distribution problems, lack of regular maintenance and rehabilitation, which leads to incapable of sustainable water use and that in turn discouraging the smallholders in the area.

However, knowing of all concerns and problems, the government is planning to improve the irrigation system with a mechanism that farmers are willing to assist in recovering the cost of the management, maintenance and operation of the irrigation system that will result from the improvement. Hence, in this thesis, farmer’s WTP for the improved irrigation water has to be investigated.

The main objective of this thesis was to estimate the mean WTP of smallholder farmers’ and to find the major factors influence households’ WTP for improved irrigation water in the case of Koga Irrigation Project (KIP) in Mecha District, North Western Ethiopia. Methodologically, this study used the contingent valuation method with double bounded dichotomous choice format to estimate the mean and total WTP for the improved irrigation water. The contingent valuation study used survey data collected from 140 randomly selected sample households from two PA’s of the irrigation command area and administered through face to face interview by enumerators. PA’s was selected using a simple random sampling technique and numbers of sample households was determined from each PA’s using probability proportional to size sampling technique and simple random sampling techniques. Secondary data from published and unpublished sources were also used. Moreover, focus group discussions and pilot survey were conducted to identify the initial bid values in an open ended question format, and 12, 26 and 36 Birr/0.25 hectare/year was identified for initial bid value.