Externalities have to be considered within policies aiming at alleviating them. Externalities tend to be at their highest level – C(E) – when no regulations are applied with the assumption (not necessarily proven) that producers and users will try to externalize costs as much as possible under such circumstances. Environmental regulations involve a level of intervention that has costs assumed by those responsible (public and private sectors), but also involve fewer externalities.
The question remains about what is the desired level of intervention that incurs acceptable costs. For instance, a level of intervention L1 would incur a cost, C(L1), but also a significant reduction in externalities; ΔE(L1). In this case, the reduction of externalities would justify intervention costs, as ΔC(L1) is smaller than ΔE(L1). At some levels of intervention (pending a constant technological level), the marginal costs involved may not justify the lower externalities. The problem remains of quantifying externalities comprehensively in order to evaluate what level of intervention – L(O) – would provide the optimal benefits for the society; C(O). However, this level cannot conceptually be accessed.