The wide range of genetic parameter estimates for production traits and nematode resistance in sheep obtained from field studies gives rise to much speculation. Using a mathematical model describing host - parasite interactions in a genetically heterogeneous lamb population, we investigated the consequence of: (i) genetic relationships between underlying growth and immunological traits on estimated genetic parameters for performance and nematode resistance, and (ii) alterations in resource allocation on these parameter estimates. Altering genetic correlations between underlying growth and immunological traits had large impacts on estimated genetic parameters for production and resistance traits. Extreme parameter values observed from field studies could only be reproduced by assuming genetic relationships between the underlying input traits. Altering preferences in the resource allocation had less pronounced effects on the genetic parameters for the same traits. Effects were stronger when allocation shifted towards growth, in which case worm burden and faecal egg counts increased and genetic correlations between these resistance traits and body weight became stronger. Our study has implications for the biological interpretation of field data, and for the prediction of selection response from breeding for nematode resistance. It demonstrates the profound impact that moderate levels of pleiotropy and linkage may have on observed genetic parameters, and hence on outcomes of selection for nematode resistance.