This study addresses the economics of water resource development, generally, and of watershed management, specifically. It seeks to determine what local people are willing to pay for improved performance of potable water and irrigation systems - particularly in the case of improved performance that would result from watershed conservation. In developing countries, the quantity and quality of water supplies are often inadequate. Water systems are often plagued by poor planning, which reflects erroneous assumptions about the needs and demands of rural populations. Moreover, in many areas there are no markets for water resources, and therefore no ways for evaluating costs and benefits of improved performance. Even where markets exist, as in Ecuador, prices are distorted by subsidies and other policies.