The organization of two farmer-managed irrigation systems in the western hills of Nepal is described by examining the ways in which the activities of water allocation, water distribution, maintenance, and resource mobilization are performed. Due to the topography and environment, these two organizations are structured primarily to mobilize the large amount of labor required for maintenance of the intake and canal. Both organizations precisely define each member's water allocation. In one system, water is allocated in proportion to the area of an individual's land holding, while in the other water allocation is by purchased shares. These two cases were used to analyze the importance of the principle of water allocation for expansion of area irrigated and equity of access to irrigation. Evidence from the two systems shows that in this hill environment water allocation by purchased shares provides the individual incentive and an organizational mechanism for efficient development of irrigation resources. Expansion of area irrigated and equity of access to irrigation were found to be greater in the system which allocates water by purchased shares than where water was allocated in proportion to area irrigated.