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Suggests a spatial conjunctive use model of an irrigation project in which the utility invest optimally for the water distribution system and charge farmers the shadow price of surface and groundwater. Seepage from the irrigation canal and on the field are assumed to recharge the groundwater aquifer. Particular attention was given to the effects of conveyance on the allocation of both surface and groundwater resources and the distribution of rents. An empirical model indicated that higher conveyance costs skew the distribution of water as well as rents over the project area. This suggests that the tail farmers need to face a substantially higher price for water if the system deteriorates and conveyance costs increase in the long run.