An externality is internalized if the persons or groups that generated the externality incorporate into their own private or internal cost-benefits (in the case of a positive externality) or the external costs (in the case f a negative externality).

What does it mean to internalize an externality?

Internalization of externalities refers to all measures (public or private) that guarantee that unpaid benefits or costs are taken into account in the composition of goods and services prices (Ding et al., 2014).

When can externalities be internalized?

In other words, internalizing the externality means shifting the load, or costs, from a negative externality, such as pollution, traffic congestion, from outside to inside (external to internal).