Virtual EconomicsTheora R. Rice

Outline• Definition• Economy Mechanics• Currency Design• Real Money Trading• Some Problems• Taxation• Interesting Stories

A Virtual Economy

“An emergent economy… observed in Multi-User Domains, Massive Multi-Player Online Role Playing

Games, life simulators, and also browser-based games”

Economy Mechanics

• Sources• Do a job/quest• Shake a tree• Kill/loot something!

• Sinks• Traveling• Permanent housing• New items

• EVE faucet• Bounty prizes

• EVE Sink• In-game taxes

Economy Mechanics• Player-to-player trading• Takes place in auction houses, or bazaars

• “Freemium”• Game is provided free of charge• Money provides advanced features

Currency Design• BAD money or

“Efficiency is not fun”• Challenge!• Social interaction!

• Currency:• Not divisible• Not fungible• Misrecognizable• Troublesome• Can be stolen• Costly to store

• Perishable • Not private (flaunt it!)• Must be valuable• Must be reliable

VS

Real Money Trading• MMORPGS• RuneScape, WoW, Guild Wars, Warhammer Online, LoTR

online and Final Fantasy XI prohibit• Undermines game play• Subject to real laws?• Responsibility for financial loss

Real Money Trading• 2007 – eBay no longer sells virtual goods• EVE• Established authorized site• Blizzard – Diablo III• March 18, 2014 will be closed down

• Many other games allow, such as Second Life

Real Money Trading• Gold Farming• Approx. 30 cents/hour• 12 hours a day, 7 days a week• Grinding – Selling• Can sell to final customer for as much as $20 for same

amount

Some Problems…• Mafias• Gold or other valuables for protection

• Cyber brothel• Pay for so many minutes of cyber sex

Taxation• “Work in the fantasy world to pay rent in reality”• Taxation for real world value?• China taxes certain categories of virtual economies• 2007 Linden Labs (Second Life) collects value-added tax

on European Union users

• Many economists leaning towards “open-flow” system taxation• Would tax Second Life, but not WoW or LoL

Interesting Stories• Diablo II - Gold became worthless• "Stone of Jordan“ ring became more valuable and was

chosen by players

• Eve Online 2013• Revenant carrier was damaged beyond repair, worth

$8000

• July 2013 Animal Crossing Economic crash• Bug - allowed players to duplicate items and money

Works Cited• http://en.wikipedia.org/wiki/Virtual_economy• http://virtualeconomyresearchnetwork.wordpress.com/2012/04/15/

designing-virtual-currency-by-breaking-almost-every-rule-in-the-economics-textbook/

• http://www.psmag.com/navigation/business-economics/the-real-value-of-virtual-economies-eve-world-of-warcraft-64593/

• http://animalcrossing.quora.com/The-Collapse-of-the-Animal-Crossing-Economy-and-the-Rise-of-Villager-Trading

• http://en.wikipedia.org/wiki/Freemium• http://games.slashdot.org/story/07/01/26/2026257/ebay-delisting-all-

auctions-for-virtual-property• http://us.battle.net/d3/en/blog/10974978/diablo%C2%AE-iii-auction-

house-update-9-17-2013• http://jvwr-ojs-utexas.tdl.org/jvwr/index.php/jvwr/article/view/7088/6333• http://www.nytimes.com/2007/06/17/magazine/17lootfarmers-t.html?

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