Intervention Costs versus Externalities
The concept of externalities has 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 under such circumstances
producers and users will try to externalize costs as much as
regulations involve a level of intervention that has costs assumed by
those responsible (public and private sectors), but also involve less
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 reductions of externalities.
The problem remains of quantifying externalities in a comprehensive
manner 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.