The purpose of this paper is to extend the purview of internalisation theory in understanding the global allocation of resources in different institutional contexts.
Theoretical extensions of internalisation theory are proposed in response to a comment.
The traditional focus of internalisation theory can be extended beyond the normal market exchange context, first, by expanding the range of transactions; second, by including non-market actors; and third, by expanding the relevant welfare criteria.
Comparative institutional analysis is enhanced by expanding the consideration of the range of intermediate goods that are traded, the potential providers examined and extending the criteria of assessment beyond efficiency to include equity, sustainability and legitimacy. These extensions add value to the internalisation theory.
