Common Agricultural Policy of the European Union, on the eve of the new financial framework 2014-2020, is significantly focusing on qualitative factors related to: the quality of life in rural areas, the quality of the natural environment, animal welfare, food safety and the preservation of cultural habits. In other words, agriculture has to provide benefits (specific public goods and externalities) to all members of society for which the government or other political institutions will pay. The objective of this article is to review the literature on the theory of externalities, with particular emphasis on the criticism of the current shape and applicability of the theory. It seems that the theory of externalities will play a main role in the development of recommendations for EU agricultural policy instruments, which take into account the importance of externalities provided by agriculture. Yet, there is no consensus on the applicability of this theory in practice, especially in its current form.