Waterfall effect is seen in:

Perfusion zones of lung: The lung is divided into three perfusion zones depending on the relationship between alveolar pressure (PA), pulmonary aerial pressure (Pa) and pulmonary venous pressure (Pv). Zone I: Refers to area of zero flow, region that does not receive blood flow. It occurs when pulmonary aerial pressure is less than the alveolar pressure. Zone II: Region of lung with intermittent blood flow. In this zone pulmonary aerial pressure is greater than alveolar pressure. The alveolar pressure is greater than the venous pressure, however, so that the downstream pressure is alveolar pressure. This situation is termed a "starling resistor"or"vascular waterfall"; the flow is independent of the eventual venous pressure and depends only on the difference between pulmonary aerial pressure and alveolar pressure (Pa > Palv > Pv). Zone III: Venous pressure now exceeds alveolar pressure and flow is determined by the aerial venous pressure difference. Ref: Textbook Of Medical Physiology, By Khurana, 1st Edition, Page 422.