This paper shows how Willingness to Pay surveys can be used to gauge household demand for improved network
water and sanitation services when a private sector transaction is considered.  We do this by presenting a case-
study from Sri Lanka, where we surveyed approximately 1,800 households in 2003. Using multivariate
regression, we show that a complex combination of factors drives demand for service improvements.    While
poverty and costs are found to be key determinants of demand, we also find that location, self-provision, and
perceptions matter as well, and that sub-sets of these factors matter differently for sub-samples of the population.  
To evaluate the policy implications of the demand analysis, we use the model to estimate uptake rates of
improved service under various scenarios – demand in sub-groups, the institutional decision to rely on private
sector provision, and various financial incentives targeted to the poor.    The simulations show that in this
particular environment in Sri Lanka, demand for piped water services is low, and that it is unlikely that under
the present circumstances the goal of nearly universal piped water coverage is going to be achieved.   Policy
instruments, such as subsidization of connection fees, could be used to increase demand for piped water, but it is
unclear whether the benefits of the use of such policies would outweigh the costs.