This paper assesses households’ awareness of the causes of drainage basin degradation and measures their willingness to pay for improved drainage basin management. Cross-sectional data were collected from 398 randomly-selected households. The spike and bivariate probit models were applied to determine the mean willingness to pay and factors affecting households’ willingness to pay, respectively. Agricultural expansion, population pressure, changes in weather conditions and climate change were identified as the main causes of degradation of the Dechatu drainage basin in Dire Dawa Administration, Ethiopia. The study also identifi ed appropriate mechanisms and bases of charging a drainage basin management fee from the sampled respondents. The mean willingness to pay from the spike model was computed to be ETB 111 per annum for five years whereas the mean willingness to pay from the open-ended elicitation method was computed to be ETB 78 per year. The higher mean willingness to pay from the spike model might be due to anchoring effect from the dichotomous choice format. The result suggests that any drainage basin management system needs to consider the monthly income, location, sex, initial bids, occupation, marital status and educational level of the affected households.