A simple model is developed for determining the socially optimum price to charge locationally differentiated irrigation districts for both surface and groundwater supplies. Steady‐state conditions are assumed for groundwater conditions and water demand functions. A divergence between social and private optimums arises from the existence of unadjudicated rights to groundwater supplies. The social optimum can be achieved by an appropriately conceived taxing policy. Water prices, tax rates, and optimum lift levels are estimated for seven irrigation districts, members of a master water agenc