The balance of externalities is not for a court or government agency to decide as long as the means exist for the market to incorporate them. Unfortunately, the mere existence of the government option destroys any potential for a market in those goods and risks.
The market does not work to well in this area, thus the externalities. By definition the existence of externalities means the market has not incorporated them into the price system, whether by vouchers or some other device (which would in and of itself require regulation). The existence of externalities is one factor considered by the courts when evaluating whether a taking has occurred by regulation of a temporal nature.