[CaptainMarvel]

During a water shortage, if most of the water is being taken up by few wealthy individuals, then there are negative externalities being created: people dying, falling sick, being hospitalised, protests and violence that takes policing resources, etc.

The market has failed to fully price the external effects generated by some economic activities, thus the government must step in and impose a tax on all water use so that they can correct the negative externality.

At the simplest level, the government can use the proceeds to buy the water themselves and distribute it to those in need. For example, to reduce bureaucracy during a crisis, they could pay for the first 5 litres of daily residential water use for each individual directly on their bills.

The problem is again: the resource is not being priced correctly.