The provision of municipal services has generally been neglected in secondary cities in developing countries. This paper describes the results of a large survey of approximately 1000 households conducted in Gujranwala, Pakistan (population about one million) to document household response to inadequate water and sanitation services and to estimate demand for improved public services. The contingent valuation method was used for the latter purpose.

The results reveal a dynamic processor individual upgradation of service levels. These investments are large, environmentally unsound and often economically inefficient. Their magnitude is such that extension of public water supply to unserved areas could result in net economic savings. The private investments indicate a high willingness to pay for improved services.

The study also shows that demand-side information about household preferences and priorities, which has traditionally been neglected, can provide a valuable input into the planning process.