The cost-vs.-quality trade-off in make-or-buy decisions
The make-or-buy decision is analyzed in a simple two-task principal-agent model. There is a cost-saving-vs.-quality trade-off in effort provision, both effort and outcome having these two dimensions. The principal faces a dichotomous choice between make/in-house, coming with weak cost-saving incentives for the agent, and buy/outsourcing, coming with strong incentives; the dichotomy is due to an in
