From the bandit camp head south past the quarry, follow the path as it turns back northwest and then narrows. Just before you get to a bridge you should find a wagon and a few bodies; the axe is lying on the ground near one of the bodies, rather than sticking out of anyone's head as Tagos described.
In the bandit camp Tagos is the guy standing on top of the open gate after you come around the first bend in the path (with a couple ladders to climb up to the top).
