Letters in Spatial and Resource Sciences

https://doi.org/10.1007/s12076-022-00300-0

ORIGINAL PAPER

Smallholder households’ willingness to pay for sustainable

agricultural water supply in case of North West Ethiopia

Agerie Nega Wassihun1 · Yitayew Malede Nega1 · Wuletaw Mekuria Kebede2 ·

Elleni Ewonetu Fenta3 · Asrat Akele Ayalew3

Received: 19 June 2021 / Accepted: 6 February 2022

© The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022

Abstract
The role of irrigation water pricing as a signal for scarcity and opportunity cost of
water plays crucial role in promoting water use efficiency. Therefore, in this study
households’ willingness to pay for sustainable agricultural water supply in case of
North West Ethiopia was analyzed from October 2019 to December 2020 using 385
sample households selected through systematic random sampling technique. Double
bounded dichotomous choice with follow up of open ended format of contingent val-
uation method were employed. Seemingly unrelated bivariate probit model was used
to analyze determinants of households’ probability of willingness to pay. Accord-
ingly, irrigation experience, livestock holding, respondent being male headed, hav-
ing access to an irrigation input, and having access to market information have posi-
tive whereas, age of respondent, distance to market, owning motor pump, rainfall
productivity, first and second bid values have negative but statistically significant
effect on households’ probability of WTP for sustainable agricultural water supply.
The mean WTP of households’ for improved irrigation water supply was estimated
961.68 and 972.66 birr per year/timad (0.25 ha) from double bounded dichotomous
choice and open ended format respectively. The aggregate welfare gain of improved
irrigation water supply from double bounded dichotomous choice and open ended
format was estimated to be 39,068,250 and 39,514,312.5 birr per year respectively.
Based on the findings, it is recommended that enhancing farmers’ awareness about
resource scarcity and efficient utilization of scarce resource should be prerequisite
for effective implementation of sustainable agricultural water charging schemes.

Keywords Seemingly unrelated bivariate probit · Smallholder households’ ·

Sustainable agricultural water · Willingness to pay

JEL Classification Q (Agricultural and Natural Resource Economics; Environmental

and Ecological Economics)

* Agerie Nega Wassihun

agerie.nega@yahoo.com
Extended author information available on the last page of the article

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 A. N. Wassihun et al.

1 Introduction

Globally water is becoming scarce economic good and the problem is severe
in developing countries. Agriculture is the major intensive consumer of fresh
water with low efficiency compared to all other economic sectors in the world.
As a result, for agricultural households, there is imbalance between demand and
supply of water which is characterized by water scarcity. Excessive use, pollu-
tion, resource misallocation and non-sustainable water supply service are some
of the undesirable outcomes resulted due to underpricing of water and lack of
cost recovery. If the worth of water is properly known by users, appropriate water
allocation could be achieved. Users try to use water wisely when there is optimal
water charge. Therefore, economic valuation of irrigation water and cost recovery
mechanisms plays vital role in improving water use efficiency and development
of water pricing mechanism (Tolera et al. 2017). Currently approximately 70% of
the global fresh water supply is consumed through irrigation agriculture. Further-
more, in developing countries for the next 20 years, irrigated land is projected to
be increased by 27% since it is the only option which can enhance food security
specifically in regions where rainfall is deficit (Kiprop et al. 2015; Tang et al.
2013).
However, the amount of irrigation water available over time in many irrigation
systems is diminishing nowadays due to the impact of adverse climatic change
and the increment of nonagricultural water use demand (Ashfaq et al. 2012;
Qureshi et al. 2010). For countries like Ethiopia, agricultural sector development
is mostly constrained by availability and sustainability of water and much discus-
sion were undertaken on the use of economic instruments enable to utilize irriga-
tion water in efficient, equitable and sustainable way (Biswas 2015). Irrigation is
promising in Ethiopia for enhancing food security and poverty reduction. Thus,
in Ethiopia to improve livelihoods of the people particularly in rural areas, irriga-
tion system has shown great advancements. The government of Ethiopia believes
that irrigation can play crucial role for improving food security and fostering
economic growth, which indicates, intensive investment on irrigation have para-
mount importance for the development of the country. Nevertheless, the contribu-
tion of irrigation to the national economy is insignificant compared to the irriga-
tion potential the country have (Haile and Kasa 2015). Awulachew and Mekonin
(2011) point out that Ethiopia has abundant potential for irrigation which is esti-
mated about 5.3 million hectares of land. Of this potential, surface water sources
can be used to develop 3.7 million hectares while 1.6 million hectares can be
developed using ground water and rain water management.
Although investment in irrigation plays crucial role in improving agricultural
productivity and enhancing livelihoods of smallholders in Ethiopia through sus-
taining food security, market participation and household income and the coun-
try has huge potential for expansion, so far only 5% of its irrigation potential is
utilized (Bekele 2014). Some of the factors preventing expansion of irrigation in
Ethiopia are shortage of financial resources, technical problems, improper or inef-
ficient irrigation water delivery performance, lack of efficient water harvesting

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Smallholder households’ willingness to pay for sustainable…

structure, lack of sense of ownership of local communities on irrigation pro-

jects, disappointment of irrigation user, and unavailability of good governance
in water sector (Kassie 2020; Yami 2016). In terms of water potential, Ethiopia
is endowed with 2.6 billion m ­ 3 ground water, eleven major lakes covering total
area of 750,000 ha and 2.6 billion m ­ 3 total annual runoff. But, still recurrent
drought, food shortage, sanitation problems and poverty are some of the chal-
lenges suffering the country (Mezgebo et al. 2013). Sustainable management and
utilization of irrigation water requires significant financial resources which can
be obtained through economic valuation of irrigation water. In developed coun-
tries like France and the Netherlands, water valuation plays over 90% revenue for
the water sector development. Developing countries can mainly benefited from
returns of water pricing because their funds either from public budgets or from
donor sources are not reliable and show significant variation from year to year
(Hurtado 2012).
Therefore, in order to assure sustainable utilization of irrigation water, pricing
of agricultural water can be considered as a crucial instrument (Chandrasekaran
et al. 2009). But, in practice it is not easy to apply irrigation water pricing using
demand and supply principle like other goods and services since irrigation water
is not traded in the market. Now a days, the concept of stated preference approach
is used to state the amount of consumers’ willingness to pay in cash in order to use
irrigation water in sustainable manner (Mezgebo et al. 2013). Rational allocation of
the existing scarce irrigation water resource across locations, uses, users, and time
periods could be achieved through theoretically correct and empirically perfect esti-
mates of the value of water (Birhane and Geta 2016). Possession feeling of farm-
ers could be reflected in water charges and guide them to utilize the available water
optimally and boost agricultural production. On the other hand, mismanagement of
the resource, lack of motivation of farmers to cooperate or participate in irrigation
establishment and poor conservation and low productivity can be resulted in non-
charge of irrigation water (Bongole 2014).
Even though studies (Angella et al. 2014; Aydogdu and Bilgic 2016; Kidane et al.
2019; Tumer 2020; Weldesilassie et al. 2009) have been conducted on economic
valuation of irrigation water using single-bounded dichotomous choice format,
according to the literature review, in Ethiopia in general and in the study area spe-
cifically, there is no systematic study undertaken on households’ willingness to pay
for sustainable agricultural water supply using double bounded dichotomous choice
format of contingent valuation method. Unlike single-bounded dichotomous choice
format, two consecutive questions are presented to respondents in double bounded
dichotomous choice format. If the respondent accept the offered bid value in the
first question, twice the first bid value is presented in the second consecutive ques-
tion and half of the first bid value is proposed if the respondent decline to accept
the first bid value which helps to reveal the true WTP value of respondents for the
resource under study. Therefore, this article contributes to bridging the gap by inves-
tigating: (1) households’ willingness to pay for sustainable agricultural water supply
(2) determinant factors that influence variation in households’ WTP for supply of
sustainable agricultural water water; (3) households’ mean and aggregate WTP for
sustainable agricultural water supply in North West Ethiopia.

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 A. N. Wassihun et al.

Fig. 1  Map of study area

2 Material and methods

2.1 Description of the study area

This study was conducted in Gondar Zuria, West and East Dembia Districts in
North West Ethiopia (Fig. 1). The weather conditions of these districts is char-
acterized by temperate and there are mixed farming systems (i.e. livestock rear-
ing and crop productions). The crop production systems are characterized through
rain fed and irrigation. Smallholder farmers are using small scale irrigation prac-
tices through motor pump, canal irrigation, and traditional river diversion and
they used mainly to produce vegetables such as onion, garlic, tomato and potato.

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Smallholder households’ willingness to pay for sustainable…

Table 1  Sample size distribution across the selected districts and corresponding kebelles
District Kebelle Total households prac- Sample size Selected sam-
ticing irrigation ple in percent

West Dembia Dahina wawa 710 53 13.77

Chenker 1211 91 23.64
Jenda 1063 79 20.52
East Dembia Ateklt teleft 273 20 5.2
Sufankara 302 23 5.97
Gebeba Salj 493 37 9.61
Gondar Zuria Dinzaz 492 37 9.61
Jayra 305 23 5.97
Siwursar wuha 295 22 5.71
Total 5144 385 100

2.2 Sample size and sampling procedure

To select unit of analysis, multi-stage sampling procedures were used. In the first
stage, out of the total districts of Central Gondar Zone, three districts namely Gondar
Zuria, East and West Dembia were selected purposively based on their potential in
irrigation. In the second stage from the selected districts, a total of nine kebelles,
three from each districts were selected purposively based on their small scale irriga-
tion potential through discussing with office of agriculture in the respective districts.
In the third stage irrigation user household heads in the selected kebelles1 were
selected by using systematic random sampling techniques by taking in to account
probability proportion of size of households in each of the three selected districts
and kebelles. Accordingly, 385 households who were engaged in small scale irri-
gation were selected using systematic random sampling considering proportion to
number of households’ engaged in irrigation agriculture. To obtain a representative
sample size, for cross-sectional household survey the study were employed the sam-
ple size determination formula developed by Kothari (2004) as follows:

Z 2 pq 1.962 × 0.5 × 0.5

n= = = 385
e2 0.052
where n = sample size; Z = confidence level (α = 0.05, hence, Z = 1.96); p = propor-
tion of the population containing the major interest, q = 1-p and e = allowable error.
Furthermore, to ensure representativeness of the sample studied for the popula-
tion of the study area, proportion of households engaged in irrigation farming in
each corresponding district and sample kebelles were taken in to account as it is
shown in Table 1.

1
Kebelle is a local name of the small administrative unit.

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 A. N. Wassihun et al.

2.3 Data source and methods of data collection

Both primary and secondary sources of data were used in this study. To collect pri-
mary data, interview schedule, focus group discussion and key informant interview
were used. Moreover, to supplement the primary data secondary data were collected
from published and unpublished sources. Nine focus group discussions, one in each
kebelles were conducted. Additionally, four key informant interviews were being
carried out with higher officials responsible for the issue in the selected districts.
The information obtained from focus group discussion and key informant interview
were used to triangulate the data obtained from survey using interview schedule.
In order to improve water allocation, reducing water consumption and manage-
ment of the irrigation systems, the valuation of irrigation water has been used as an
instrument by researchers over the past decades. The economic concept of willing-
ness to pay (WTP) is defined as the amount of money taken away from the con-
sumers’ income while keeping their utility constant. WTP which is used to state
the amount of money the consumers willing to pay is becoming popular approach
by market researcher and environmental economists to value goods and services
which cannot be traded directly to the market like irrigation water since in differ-
ent location, irrigation water is considered as non-market goods and there is no
direct market price for it. Thus, non-market valuation approach of which contingent
valuation method of stated preference approach was employed to elicit households
WTP for improved irrigation water supply. In developing countries high level of
WTP is experienced (Chandrasekaran et al. 2009). There are different elicitation
methods used to estimate willingness to pay from a sample of households in con-
tingent valuation surveys. The most commonly and widely used elicitation formats
are open-ended, bidding game, payment card, single-bounded dichotomous choice,
and double-bounded dichotomous choice methods. Among them especially dichot-
omous-choice (DC) format is the most commonly used (Ahmed and Gotoh 2006).
The other three methods have been shown to suffer from incentive compatibility
problems in which survey respondents can influence potential outcomes by reveal-
ing values other than their true willingness to pay. Therefore, in this study double
bounded dichotomous choice format with a follow up of open ended question were
used. Accordingly, in double bounded dichotomous choice format, respondents were
asked whether they would to pay for sustainable irrigation water supply using two
follow-up bid value questions in which the second question is based on respondents’
response on the first offered bid response. According to Desta (2018), in double
bounded dichotomous choice format, sets of bid values are determined by making
twice the first bid value if the respondent accept the first offered bid value and if the
respondent decline to accept the first bid value, half of the first bid value was pro-
posed. Four starting bid values were used for the corresponding scenario valuation
question. To determine these starting bid values, pilot survey was undertaken on 25
randomly selected households through open ended format. In order to avoid bias,
responses of these households were not included in the final analysis. Accordingly,
for the double bounded dichotomous choice format, the most frequently stated bid
values were taken as initial bids. Therefore, 400, 500, 600, and 800 birr were the ini-
tial bid values. These initial bid values were randomly and evenly distributed to 385

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Smallholder households’ willingness to pay for sustainable…

sample household questionnaire and respondents were asked questions about their
willingness to pay for improved irrigation water supply with any one of the four
pre-determined first bid value and the corresponding second bid value was depend-
ing on their response on the first bid. Thus, the sets of bid values in this study was
(400,200,800), (500,250,1000), (600,300,1200), (800,400,1600). Besides, following
double bounded dichotomous questions, households’ who were willing to pay for
the provision of sustainable agricultural water supply were asked their maximum
willingness to pay using open ended question. The minimum threshold amount for
the open ended question was either the first or second bid value depending on their
response on the former double bounded dichotomous question.

2.4 Methods of data analysis

2.4.1 Seemingly unrelated bivariate probit model specification

Seemingly unrelated bivariate probit model was employed to analyse the two binary
response variables which vary jointly in double bounded dichotomous choice for-
mat of contingent valuation method. To determine whether univariate or bivariate
probit model is fitted for analysis, the significance level of rho (ρ), which shows
the value of the correlation coefficient between random errors of the two equations
was checked. Accordingly, in the estimates of Seemingly unrelated bivariate probit
model, Rho (ρ), coefficient of correlation of error terms is positive (0.96) and statis-
tically significant at 1% level of significance which means the two equations error
terms are positively and significantly correlated which implies the existence of lin-
ear relationship between the random components of the responses in the initial bid
and the second bid.
The random components of the responses in the initial bid and the second bid is
not perfect because Rho (ρ) is less than one. Therefore, the probability in which the
null hypothesis that willingness to pay decisions for the first bid and second bid are
independent is rejected suggesting that the two equations are interdependent and can
be estimated simultaneously. So, the two equations may be analyzed by Seemingly
Unrelated Bivariate Probit model or Bivariate Probit model rather than univariate
probit model. However, seemingly unrelated bivariate probit regression estimation
was used because the explanatory variables are not the same for both equations
but still correlated unlike the bivariate probit model which is applicable if the two
dependent variables depend on the same list of explanatory variables (Joseph 1996).
To identify the factors simultaneously determining the two WTP equation
dependent variables, a seemingly unrelated (SUR) bivariate probit model for an
individual i can be specified as follows (Eqs. 1 and 2) based on (Haab and McCo-
nnell 2002; Cameron and Trivedi 2010):
WTP1i = Xi 𝛽1i + 𝜀1i (1)

WTP2i = X2i 𝛽2i + 𝜀2i (2)

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 A. N. Wassihun et al.

where i = ith respondent’s willingness to pay; β1i and β2i = are unknown parameters
to be estimated in the first and second equation respectively; X is a vector of socio-
economic and demographic variables that can affect amounts of offered bid values
for sustainable agricultural water supply. In this study, age of respondent, irrigation
experience, distance to market, sex of respondent, livestock holding, total land hold-
ing size, distance to irrigation farm, water shortage, access irrigation input,, satis-
faction with existing irrigation scheme, rainfall productivity, owning motor pump,
access to market information, off/non-farm income, amount of first and second bid
price were variables represented by the vector X. WTP1 and WTP2 = unobservable
random components in the first and second equations respectively; 𝜀1 and 𝜀2, are
error terms normally distributed with mean zero and respective variances 𝜎1 and 𝜎2,
and have a bivariate normal distribution with correlation coefficient ρ. Where, ρ ≠ 0.
There are four joint responses probabilities for the offered initial and follow up
bids (Yes, Yes), (Yes, No), (No, Yes) and (No, No) (Eqs. 3, 4, 5 and 6). The prob-
ability of responses of respondent i to the first and the second offered bid valuses is
given by (Haab and McConnell 2002):

pr(no, no) = pr(WTP1i < t1 , WTP2i < t2 )

(3)
= pr(xi 𝛽1i + 𝜀1i < t1 , xi 𝛽2i + 𝜀2 i < t2 )

pr(no, yes) = pr(WTP1i < t1 , WTP2i ≥ t2 )

(4)
= pr(xi 𝛽1i + 𝜀1i < t1 , xi 𝛽2i + 𝜀2 i ≥ t2 )

pr(yes, no) = pr(WTP1i ≥ t1 , WTP2i < t2 )

(5)
= pr(xi 𝛽1i + 𝜀1i ≥ t1 , xi 𝛽2i + 𝜀2i < t2 )

pr(yes, yes) = pr(WTP1i ≥ t1 , WTP2i ≥ t2 )

(6)
= pr(Xi 𝛽1i + 𝜀1i ≥ t1 , Xi 𝛽2i + 𝜀2i ≥ t2 )

where ­t1 = amount of the first bid (Bid 1) and ­t2 = amount of the second bid (Bid 2).

2.4.2 Estimation of the mean willingness to pay

In this study, the Krinsky and Robb (1986) methods was carried out to compute
mean WTP from double bounded dichotomous choice format since this method
considers the significance level of mean WTP for the two simultaneous equations.
Furthermore, mean WTP was also computed from open ended format of contingent
valuation survey undertaken in this study. “What is the maximum amount that you
are willing to pay for one Timad (0.25 ha) of irrigable land per year” was the ques-
tion used to reveal households’ maximum willingness to pay for open ended format.
The amount of money they agreed to pay either in the first or second bid in the dou-
ble bounded dichotomous question (depending on their response) was the minimum

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Smallholder households’ willingness to pay for sustainable…

threshold for open ended question. Accordingly, the mean WTP of respondents from
open ended format is simply average of respondents maximum WTP (Eq. 7).
n
1∑
MeanWTP = yi (7)
n i=1

where n is the numbers of respondents and “yi” is the amount of respondents maxi-
mum WTP.

2.5 Description of variables and their measurement

2.5.1 Dependent variables

The dependent variables were willingness to pay for the first bid price (WTP1) and
willingness to pay for the second bid price (WTP2) both have a dichotomous nature
of measuring whether the respondents are willing to pay or not for the offered bid
price which takes the value of 1 if the respondent was accept the offered bid price
and 0 if they declined.

2.5.2 Control variables

Different socio-economic and demographic variables are expected to affect the deci-
sion of smallholder farm households to be willing to pay for sustainable agricultural
water supply in the study area. These factors were identified based on review of the
contemporary literatures. These factors are described and hypothesized in Table 2 as
follows.

3 Results and discussion

3.1 Socio economic characteristics of respondents and their WTP for sustainable

agricultural water supply

From the total sample household respondents, 87.27% were male and 12.73% were
female headed. The average age of sample respondents was 46.25 years with a range
of minimum of 19 years and maximum of 80 years. Moreover, 97.66% of respond-
ents were willing to pay while 2.34% of them were not willing to pay for sustainable
agricultural water supply. Details of summary statistics of respondents’ characteris-
tics and their WTP is shown in Table 3.

3.2 Factors affecting households’ WTP for sustainable agricultural water supply

Table 4 shows results of marginal effects after seemingly unrelated bivariate probit
model for households’ willingness to pay for sustainable agricultural water supply.

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 A. N. Wassihun et al.

Table 2  Description of explanatory variables, their measurement and expected sign

Variable description Variable type Measurement Expected sign

Sex of respondent Dummy 1 = Male headed, 0 = Female +

headed
Age of respondent Continuous Year −
Irrigation experience Continuous Year +
Distance to market Continuous Kilometer −
Livestock holding Continuous Tropical livestock unit +
Total land holding Continuous Hectare +
Distance to irrigation farm Continuous Kilometer −
Water shortage Dummy 1 = shortage, 0 = otherwise −
Access to irrigation input Dummy 1 = having access, 0 = otherwise +
Owning motor pump Dummy 1 = owning pumping motor, 0 = oth- +
erwise
Satisfaction with existing irrigation Dummy 1 = satisfied, 0 = not satisfied −
scheme
Rainfall productivity Dummy 1 = Increasing, 0 = declining −
Access to market information Dummy 1 = having access, 0 = otherwise +
Off/non-farm income Dummy 1 = participate, 0 = otherwise +
Amount of first bid price (Bid1) Continuous Birr −
Amount of second bid price (Bid2) Continuous Birr −

The seemingly unrelated bivariate probit model result is interpreted based on the
marginal effect in the way that changes in WTP due to a unit change in the continu-
ous independent variables and for discrete variables, change from 0 to 1. The prob-
ability of respondents’ accepting both the first and second offered bid value (Yes,
Yes) was 54.3%; the probability of accepting the first offered bid value and protest-
ing the second bid value(Yes, No) was 22.2%; the probability of respondents’ pro-
testing the first offered bid value and accepting the second offered bid value (No,
Yes) was 11%; and 12.5% was the respondents’ probability of protest against both
the first and second offered bid value (No, No). Of sixteen explanatory variables
eleven variables were found to have statistically significant effect on households’
willingness to pay for improved irrigation water supply. Accordingly both continu-
ous and dummy significant variables are interpreted as follow:
The coefficient of the first bid amount have negative and statistically significant
effect on households’ willingness to pay for improved irrigation water at 1% level
of significance. The result implies, the higher the amount of first bid the lower the
probability of accepting the offered bid amount which is in line with the law of
demand of economic theory. The marginal effect of the model shows that, keeping
all other variables constant at their mean value, as first bid increase by one birr from
the mean, the probability of households’ willingness to pay for improved irrigation
water supply decreases by 0.55%.
The coefficient of the second bid amount have also negative and statistically sig-
nificant relationship with households’ willingness to pay for improved irrigation

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 Table 3  Summary statistics for socioeconomic characteristics of respondents and their WTP. Source: Authors computation from field survey data, 2020
Variable Observation Mean Minimum Maximum Frequency Percent

Age of respondent 385 46.25 19 80

Irrigation experience 385 10.31 1 35
Distance to market 385 6 7.8 23
Livestock holding 385 5.66 0 30.48
Total land holding 385 1.5 0.0625 4.5
Distance to irrigation farm 385 2 5.6 12
Male headed 385 336 87.27
Female headed 385 49 12.73
Irrigation water shortage problem 385 324 84.16
Having irrigation input access 385 323 83.9
Smallholder households’ willingness to pay for sustainable…

Owning pumping motor 385 204 52.99

Satisfied with existing irrigation scheme 385 252 65.45
Having access to market information 385 134 34.81
Participation in off/non-farm income activities 385 123 31.95
Not WTP for sustainable agricultural water supply 385 9 2.34
WTP for sustainable agricultural water supply 385 376 97.66
Accept both the first and the second offered bid value (Yes, Yes) 376 162 43.09
Protested against both the first and second offered bid value (No, No) 376 15 3.99
Accept the first offered bid value but protested against the second offered bid (Yes, No) 376 116 30.85
Reject the first offered bid value but accept the second offered bid value (No, Yes) 376 83 22.07

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 Table 4  Marginal effects after seemingly unrelated bivariate probit model. Source: Authors computation from field survey data, 2020
Variable Coefficient (Eq. 1) P>Z Coefficient (Eq. 2) P>Z Marginal effect P>Z

Sex of respondent = 1 if male headed 0.4206 (0.209) 0.045 0.2210 (0.223) 0.323 0.1349 (0.074) 0.067*

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Age of respondent − 0.0288 (0.009) 0.002 − 0.0185 (0.008) 0.019 − 0.0099 (0.003) 0.000***
Irrigation experience 0.0544 (0.015) 0.000 0.0422 (0.014) 0.002 0.0207 (0.005) 0.000***
Distance to market − 0.0031 (0.004) 0.409 0.0091 (0.003) 0.007 − 0.003 (0.001) 0.017**
Livestock holding 0.0325 (0.029) 0.258 0.0497 (0.026) 0.054 0.019 (0.009) 0.038**
Total land size 0.2655 (.130) 0.041 0.0295 (0.109) 0.788 0.0533 (0.039) 0.179
Distance to irrigation farm 0.0221 (0.007) 0.001 − 0.0046 (0.006) 0.418 0.0025 (0.002) 0.217
Water shortage − 0.2181 (0.209) 0.298 − 0.1619 (0.209) 0.439 − 0.0798 (0.069) 0.250
Having access to irrigation input 1.1 (0.203) 0.000 0.2625 (0.212) 0.216 0.2873 (0.058) 0.000***
Owning motor pump − 0.231 (0.157) 0.141 − 0.1484 (0.139) 0.286 − 0.0794 (0.048) 0.10*
Satisfaction 0.2069 (0.169) 0.220 0.0594 (0.161) 0.712 0.0521(0.054) 0.338
Rainfall productivity − 0.3883 (0.162) 0.017 − 0.1876 (0.158) 0.237 − 0.1176 (0.053) 0.026**
Having access to market information 0.2708 (0.179) 0.130 0.1958 (0.162) 0.226 0.0983 (0.054) 0.067*
Off/non-farm income 8.51e−06 (0.000) 0.672 0.001 (0.000) 0.179 8.37e−06 (0.000) 0.231
Bid1 − 0.0020 (0.001) 0.000 − 0.0055 (0.001) 0.000***
Bid2 − 0.0016 (0.000) 0.000 − 0.0004 (0.000) 0.000***
Cons 2.5824 (0.228) 0.000 2.1329 (0.485) 0.000
/athrho 0.9249 (0.215) 0.000
Rho 0.9624
Log pseudolikelihood =  − 401.8243
Number of obs = 385
Wald chi2(30) = 138.95, Prob > chi2 = 0.0000
Wald test of rho = 0: chi2(1) = 18.0801 Prob > chi2 = 0.0000
Probability of (Yes, Yes) = 54.3% Probability of (Yes, No) = 22.2%
Probability of (No, Yes) = 11% Probability of (No, No) = 12.5%

***, ** and *represents significance level at 1%, 5% and 10%, respectively

Numbers in parenthesis are robust standard Errors
A. N. Wassihun et al.
Smallholder households’ willingness to pay for sustainable…

water supply at 1% significance level which indicates the higher the amount of the
second bid the lower the probability of accepting the second offered bid value which
is also consistent with economic theory of law of demand. The marginal effect of
this variable revealed that holding other variables constant at their mean value, a one
birr increase in the second bid value decrease the probability of households’ willing-
ness to pay for improved irrigation water supply by 0.04%. These findings is consist-
ent with the findings of (Astatike 2016; Tolera et al. 2017). In their study both the
first and second bid values have negative and significant relationship with the house-
holds’ willingness to accept the offered bids at 1% level of significance.
The coefficient of the dummy variable sex of respondent have positive and signif-
icant effect on households’ willingness to pay for sustainable irrigation water supply
at 10% level of significance. The marginal effect of this variable shows that keeping
other variables constant at their mean value, male headed households’ were found
to have 13.49% more likely willing to pay for irrigation water supply improvement
compared to female household heads.
The age of respondent have negative and statistically significant effect on house-
holds’ willingness to pay for improved irrigation water supply at 1% level of sig-
nificance. The result indicates as the age of households’ increase the lower the prob-
ability of accepting the offered bid value, this is because of irrigation farming is
labor intensive activity. The marginal effect of this variable also shows that as age
of the respondent increase by one year, the probability of accepting the offered price
decreases by 0.99% keeping other factors constant at their mean value. This find-
ing is consistent with the findings of (Kidane et al. 2019). In their study age of the
household head had negative but statistically significant effect on households’ will-
ingness to pay at 10% level of significance. Furthermore, this finding is also consist-
ent with a similar study conducted by Meunier et al. (2019) in Rwanda.
The variable irrigation experience have positive and statistically significant effect
on households’ willingness to pay for improved irrigation water supply at 1% level
of significance. The study result reveals that as experience of irrigation farming
increases by one year from the mean, keeping other factors constant at their mean
value, the probability of households’ accepting the offered bid value increases by
2.07%. This result is consistent with the findings of (Weldesilassie et al. 2009).
Distance from home to the nearest market have negative and statistically signifi-
cant effect on households’ willingness to pay for improved irrigation water supply
at 5% level of significance. This implies when the distance from households’ home
to nearest market increase households face challenge to sell their irrigation output
to the market and to purchase irrigation inputs from the market. The result shows
that as distance from home to the nearest market increase by one kilometer from the
mean, the probability of households’ accepting the offered bid value decreases by
0.3% keeping other factors constant at their mean value. The finding is consistent
with a similar study in Eritrea by Kidane et al. (2019) states that distance to market
negatively and statistically significant effect on willingness to pay at 10% level of
significance since it reduces the farm households integration to the market.
Livestock holding of respondents’ in terms of tropical livestock unit (TLU)
have positive and statistically significant relationship with households’ willing-
ness to pay for improved irrigation water supply. This indicates that the more the

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 A. N. Wassihun et al.

livestock the more the households’ willing to accept the offered bid value. This is
because when households’ have more livestock they may not face financial con-
straints to purchase irrigation inputs, they can also use organic fertilizer instead
of chemical fertilizer for their irrigation farm. The marginal effect of this variable
indicate that when households’ livestock holding increases by one TLU from the
mean, the probability of households’ accepting offered bid values for improved
irrigation water supply increases by 1.9% holding other factors constant at their
mean value.
The coefficient of the dummy variable having access to an irrigation input have
positive and statistically significant effect on households’ probability of accepting
the offered bid values for improved irrigation water supply at 1% level of signifi-
cance. The study result reveals keeping other factors constant at their mean value,
households’ who have irrigation input access have 28.73% more probability of
accepting offered bid values for improved irrigation water supply compared to those
households’ who have irrigation input access problem. Having access to an irriga-
tion inputs like improved seeds, rainwater harvesting tanks, fertilizer, pesticides and
insecticides can significantly increase production and productivity in a given parcel
which is in line with the findings of (Ngango and Hong 2021).
Owning motor pump is a dummy variable which have negative and statistically
significant effect on households’ probability of accepting offered bid values at 10%
level of significance but opposite with the proposed hypothesis. The negative sign
implies households who have motor pump can get adequate water from current irri-
gation scheme and they are not willing to accept the offered price. The marginal
effect result shows that households’ who own motor pump have 7.94% less likely to
accept offered bid values compared to those households’ do not have motor pump
holding other factors constant at their mean value. This finding is contradicted with
the findings of Astatike (2016), in his study having pumping motor had positive and
statistically significant effect on households’ probability of accepting the offered
bids. However, our result is consistent with the findings of (Aydogdu and Bilgic
2016). They pointed out that, modern irrigation using pressurized system enable to
use water efficiently compared to irrigation using gravity type, due to this the agri-
cultural yield is higher for those households’ who uses motor pump and they pay
less likely to accept offered bids for irrigation water supply improvement.
The trends in rainfall productivity is negative and statistically significant at 5%
level of significance. This indicates that households’ who perceive trends in rainfall
productivity is increasing have 11.76% less likely to accept offered bid values com-
pared to households’ who perceive trends in rainfall productivity is declining keep-
ing other factors constant.
The coefficient of the dummy variable having access to market information either
during purchasing of irrigation inputs or selling irrigation produce have positive and
statistically significant effect on offered bid values at 10% level of significance. The
positive sign indicates households’ who have access to market information can get
reasonable price for their irrigation product, as a result they are motivated to boost
their production and willing to pay for improved irrigation water supply. The mar-
ginal effect also reveals households’ who have market information have 9.83% more
likely to accept the offered bid values holding other factors constant.

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Smallholder households’ willingness to pay for sustainable…

Table 5  Estimated mean WTP using Krinsky and Robb procedure. Source: Authors computation from
field survey data, 2020
Measure WTP LB UB ASL* CI/MEAN Variation

Mean for Eq. 1 961.68 915.41 1018.2 0.0000 0.23 102.79

Mean for Eq. 2 1132.27 1058.78 1186.36 0.0000 0.18 127.58

Where: ASL* is Achieved significance level, LB lower bound, UB upper bound

3.3 Households’ mean WTP for improved irrigation water supply

3.3.1 Estimation of mean WTP from double bounded dichotomous choice format

Computing mean WTP by the method introduced by Krinsky and Robb (1986) is
recommended because this method shows the significance level of the computed
mean willingness to pay for both the first and second equation. Moreover, for sam-
ple sizes ranges from small to medium, this method provide robust result (Claudy
et al. 2011). Therefore, in this study, the Krinsky and Robb procedure was used to
estimate mean willingness to pay for both equation one and equation two. Estimated
mean willingness to pay for improved irrigation water supply from both equations
is described in Table 5. Accordingly, mean WTP for equation one is 961.68 birr
per annum per timad (0.25 ha) and it is statistically significant at 1% level of sig-
nificance. This mean is bounded between 915.41 and 1018.2 birr with 102.79 birr
overall variation. Furthermore, the mean WTP for equation two is 1132.27 birr per
year per timad (0.25 ha) and it is statistically significant at 1% level of significance.
The mean for the second equation is bounded between 1058.78 birr and 1186.36
birr with 127.58 over all variation from the mean. Even though the two estimated
mean WTP values are statistically significant, estimates of mean WTP from equa-
tion one is used to compute mean WTP for this study because of two reasons. The
first reason is that mean WTP for equation one has lower overall variation compared
to the overall variation of mean WTP for the second equation. The second reason is
that more noise in terms of anchoring bias is probably expect in the second equation
because while respondents are making their WTP decision for the second bid, it is
assumed to take the clue from the first bid (Desta 2018). Therefore, 961.68 birr per
year per timad (0.25 ha) was used in this study as mean WTP and further to estimate
the expected aggregate WTP for double bounded dichotomous choice format if the
scenario for improved irrigation water is implemented in the study area.

3.3.2 Estimation of mean WTP from open ended format

The mean willingness to pay of households’ for improved irrigation water supply
was also computed from open ended format of contingent valuation survey under-
taken in this study. Accordingly, from the open ended format, households’ mean
willingness to pay was found to be 972.66 birr per year/timad (0.25 ha) by excluding
protested observations, which is slightly higher than the mean WTP of households’

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 A. N. Wassihun et al.

Table 6  Summary of mean and expected aggregate WTP. Source: Authors computation from field survey
data, 2020
CV Elicitation format Model Mean WTP Aggregate WTP for about 29,414 beneficiary
households and 10,156.25 ha (40,625 timad)
Irrigable land

Double bounded Seemingly unrelated 961.68 39,068,250

dichotomous choice bivariate probit
Open ended Descriptive statistics 972.66 39,514,312.5

from double bounded dichotomous choice format which is 961.68 birr because
respondents have a tendency to state their maximum WTP close vicinity to their
highest accepted bid value. This finding is contradict with the findings of (Astatike
2016; Tolera et al. 2017; Weldesilassie et al. 2009). The mean values computed from
double bounded dichotomous choice and open ended format are by far less than the
mean annual income of households that use irrigation which is 65,790.1 birr per
year/timad (0.25 ha).

3.4 Aggregate willingness to pay for sustainable agricultural water supply

The expected aggregate willingness to pay for year round supply of sustainable irri-
gation water can be computed by taking the total number of beneficiary households
in the command area. Beneficiary households are the total number households who
are engaged in irrigation farming in the corresponding districts. According to the
information obtained from Central Gondar Zone Agricultural office, the total num-
ber of beneficiary households in the command area is estimated at about 29,414 and
the total irrigable land in the command area is about 10,156.25 hectare. Therefore,
based on these figures, the expected aggregate willingness to pay for sustainable
agricultural water supply using the double bounded dichotomous choice format and
open ended format of contingent valuation method carried out in this study was Birr
39,068,250 and 39,514,312.5, respectively. These estimated aggregate economic
values for the entire command area of this study are by far higher than the mean
annual irrigation income of the households which is 65,790.1 birr per year/timad
(0.25 ha). Table 6 shows summary of mean and expected aggregate willingness to
pay.

4 Conclusions and policy implications

The role of irrigation water pricing as a signal for scarcity and opportunity cost of
water plays crucial role in promoting water use efficiency since demand for irriga-
tion water is rising. Therefore, reliable estimates of the economic value of water
is required for rational decision making regarding investment decisions in irriga-
tion sector development, efficient allocation of irrigation water, allowing recovering
operation and maintenance costs, and policy decisions on sustainable water use.

13
Smallholder households’ willingness to pay for sustainable…

In this study, contingent valuation method of stated preference approach was

used using double bounded dichotomous choice with a follow up of open ended
format to estimate smallholder households’ willingness to pay for sustainable
agricultural water supply. Seemingly unrelated bivariate probit model was used
to analyse the determinants of households’ WTP for sustainable irrigation water
supply and the result shows WTP for sustainable agricultural water supply is sig-
nificantly influenced by irrigation experience, livestock holding, access to irriga-
tion input, access to market information, age of respondent, distance to market,
sex of respondent, owning motor pump, rainfall productivity, and first and follow
up bid values.
The findings of WTP, mean and aggregate WTP implies as there is promising for
investors to introduce new irrigation projects and expand existing irrigation projects
through implementation of irrigation water pricing. Farm households in the study
area can be benefited from this findings if the water pricing is implemented properly
since they can access adequate water throughout the year which enables them to
increase cropping intensity using irrigation and ultimately improves their standard
of living. Managers and decision makers can also use the estimated monetary values
of irrigation water for making decisions and assessment of policies. Finally, based
on the findings it is recommended that enhancing farmers’ awareness about resource
scarcity and efficient utilization of scarce resource should be prerequisite for effec-
tive implementation of irrigation water charging schemes since in the study area
irrigation water charges have not been applied so far. Moreover, to implement agri-
cultural water pricing and ensuring sustainability of irrigation projects, the socio-
economic variables should be taken in to account. To facilitate marketing for those
households who are living far from the market and increase their WTP amount, veg-
etable marketing cooperatives should be established and the existing transport facili-
ties needs improvement. Regular training on irrigation agronomic practices should
be also given for female headed households and for those who have low or no irri-
gation experience so as to increase their return from irrigation farming. The results
also highlight a need to improve households’ access to market information and irri-
gation inputs.
It is also desirable to disclose the limitations of this work. The study was based
on cross sectional data which cannot capture changes in WTP overtime since it
is limited for one year. Therefore, in future research for the full understanding of
smallholder households’ WTP for sustainable agricultural water supply, our analysis
should be extended with panel data.

Acknowledgements We are grateful to University of Gondar for funding this research work. We are also
very grateful for West Dembia, East Dembia, and Gondar Zuria districts administrative for their coop-
eration during the survey, focus group discussion, key informant interview, and providing supplementary
secondary data. Last but not least, we thank the respondents in the corresponding districts for their par-
ticipation in the survey and focus group discussion for this study.

Authors’ contributions All authors has been actively involved in making a crucial contribution to the
design and completion of this research, interpretation of data and conclusions, assisted in drafting and
revising the manuscript, read and approved the final submitted manuscript.

Funding This work was financed by the University of Gondar, Ethiopia.

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 A. N. Wassihun et al.

Data availability All authors declare that the datasets used in this manuscript are fully available upon
request from the corresponding author.

Declarations

Conflict of interest The authors declare that they have no any competing interests in this manuscript.

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Authors and Affiliations

Agerie Nega Wassihun1 · Yitayew Malede Nega1 · Wuletaw Mekuria Kebede2 ·

Elleni Ewonetu Fenta3 · Asrat Akele Ayalew3
Yitayew Malede Nega
yitayewmaledeyitayew@gmail.com
Wuletaw Mekuria Kebede
wuletaw.m@gmail.com
Elleni Ewonetu Fenta
ellenifenta5@gmail.com
Asrat Akele Ayalew
asratakele12@gmail.com
1
Department of Agricultural Economics, College of Agriculture and Environmental Sciences,
University of Gondar, P.O. Box 196, Gondar, Ethiopia

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 A. N. Wassihun et al.

2
Department of Rural Development and Agricultural Extension, College of Agriculture
and Environmental Sciences, University of Gondar, P.O. Box 196, Gondar, Ethiopia
3
Department of Natural Resource Management, College of Agriculture and Environmental
Sciences, University of Gondar, P.O. Box 196, Gondar, Ethiopia

13