Areas of water shortage comprise many smaller sub-areas into which water is transported from external sources. Fairness and efficiency of distribution are overriding principles. Each local area requires adequate water for community and ecological purposes as well as a supply sufficient to maximise economic growth. Within arid and semi-arid areas, there are conflicts between the sub-areas and between these three types of water use, which can erupt into violent confrontations between different user groups. This study has developed a dynamic model for equitable distribution of water in water-shortage areas and aims to optimally satisfy the requirements of each locality, given limited supplies, and to maximise the total economic benefit of the entire area. The Heihe River Basin in northwest China was chosen as the area for the pilot study.