The argument for out-sourcing is that it can lead to a reduction in costs. However, the effect on quality is less clear. Drawing on Hart et al. (1997) we develop a model to explain the incentives to invest in cost reduction and quality improvement in the context of waste management. The basic model tells us that outsourcing provides stronger incentives to reduce costs and increase quality relative to keeping waste management in-house. To this basic model we add a political dimension and find that the gap in quality widens. We also explore some initial empirical evidence.

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