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A perverse incentive that I have personally experienced the speed of work when a service technician is paid per hour instead of per job. We recently hired a company to do some electrical work in our house. We paid the company per job, but their electrician was paid per hour. The intention is to prevent electricians from rushing through their work (which could happen if they were paid per job) and help ensure the safety of their workmanship. The unintended consequence of the electrician being paid per hour, no matter how long it takes him to complete the job, caused the job to take longer what was anticipated. What was described as a simple job, instead lasted 4+ hours with an hour lunch break and supply run in the middle.

2a.) Free Rider Problem - Chapter 2, page 32-33 - is when individuals benefit from services or resources that they did not contribute to which causes undue burden on those that do contribute. An example of this from my life are group-funded fireworks displays. At the campground we camp at, they raise money for fireworks every 4th of July. Everyone is asked to contribute, but it is not mandatory. Regardless of if you contribute, you still get to enjoy the impressive fireworks display.

2b.) Externality - Chapter 3, pages 57-58, are when the private or internal costs of a decision differ from the social or external costs. An example of this that I have experienced second hand occurred at a previous job. We were not allowed to expand our facility's footprint because the land our building sat on was "historically contaminated." This occurred because many years before, a plating company dumped their by-products directly into the soil. This was cheap and easy for them (low internal costs), but it caused pollution to the area directly around the building for years to come (high external costs)."