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Dec 01, 2005



I think this should be required reading for anyone interested in the policy questions raised by RMT. The specification of goods according to rivalry and exclusion is a direct off-the-shelf application of age-old economic understanding of 'strange' goods (which digital items certainly are). I believe - and Joshua Fairfield can correct me if I am wrong here - that this economic treatment is generally consistent with a legal approach that treats digital items as ordinary property (not intellectual property).

I think this paper and Fairfield's bring the community two giant steps forward. First, we get away from the confusions of intellectual property law, which we've been applying just because the items in question exist in databases. Look, not everything exportable as a file is intellectual property. And now, we get to the heart of the matter: what are the economic properties of the goods in question? Are they excludable? Are they rivalrous? Are they copyable?

So now we are almost in a position to talk about an RMT policy. RMT regulation should proceed according to the ages-old economic policy recommendations that apply to goods because of their economic features. That's where intellectual property thinking comes in -
property that's excludable but copyable at low cost deserves some copyright protection. That thinking applies to a brand name in Second Life, but not to the Greater Magic Essence of World of Warcraft.

Basically, the idea is: no regulation for pure private goods (Hamburgers & Magic Wands: excludable, not copyable, rivalrous); public provision for pure public goods (national defense & the internet: non-excludable, non-rivalrous); copy protection for intellectual goods (my book & SL's Tringo: rivalrous, excludable, copyable); regulated private provision for club goods (Disneyland & synthetic worlds themselves: excludable, partially rivalrous with congestion effects); government regulation of externality-producing goods (coal-fired electricity & {GUESS WHAT}: goods with non-excludable effects).

All we need is a broad understanding that RMT falls in the last category: when Jones sells Smith Boardwalk for $US50, Jones and Smith are made more happy, but Miller and Kakutani, the other two players, suffer an unexcludable effect in that their Monopoly game is less fun.

That's the case for having a policy about RMT. It's pollution. Pollution of the game atmosphere, the game's economy, and the designer/player relationship. Since the 1920s, even the most libertarian of economists have said that where there is pollution, it makes sense to look for cost-effective ways to reduce it, quite possibly through regulating bodies such as the government, or in this case, the devs. I am not sure that EULAs and bans are the way to go, but parsing the market, as with RP servers and Station Exchange, is a good start toward very low-cost solutions.


Edward Castronova wrote:

All we need is a broad understanding that RMT falls in the last category: when Jones sells Smith Boardwalk for $US50, Jones and Smith are made more happy, but Miller and Kakutani, the other two players, suffer an unexcludable effect in that their Monopoly game is less fun.

There are two problems with this. The first is trying to make an analog between a competitive game and a virtual world. They are very different things as you well know.

The second is that the logic is flawed. Just because two other people are made unhappy by a specific action is no reason to exclude it. I may find that I don't want to lose -anything- upon death in an MMO, yet my own in-game death causes me to suffer an unexcludable effect in that my experience is less fun. This is an argument for parseable worlds, as you say.

Using the exact same logic, I can argue against probably half the features in any MMO. Here is the same logic applied to the ability to give items to other people.

"When Jones gives Smith Boardwalk because they are out-of-game friends, Miller and Kakutani, the other two players, suffer an unexcludable effect in that their Monopoly game is less fun."

Is giving items to other people thus "pollution?"



No. It has external effects. That makes it an "externality". Pollution is an externality. RMT is an externality. Charity is an externality, a positive one in most contexts. That's why the government supports it.

Oh forget it, this fight is boring. Go read some public economics textbooks, then come back and say the logic is flawed.

Not only that, but I meant to post my comment on the Schwarz/Bullis paper, not this one. I'll go repost it now.


> I meant to post my comment on the Schwarz/Bullis paper, not this one.

Whew. I had been trying to figure out how my observations related to RMT, but finally decided I wasn't caffeinated enough to follow the jump.

I feel better now. Sort of.



Edward wrote:

Oh forget it, this fight is boring. Go read some public economics textbooks, then come back and say the logic is flawed.

You're right, this fight IS boring. What's boring about it is the moral crusade aspect of your dogmatic anti-RMT stance.



"parsing the market, as with RP servers and Station Exchange, is a good start toward very low-cost solutions."

I couldn't agree more!

"Is giving items to other people thus "pollution?"

The modern definition of Pollution is extremely subjective, almost to the individual level. Ask a Music Industry Executive if 'sharing' is 'polluting' that industry, and driving down the value being created, and you will get a very different answer than what you might find on Slashdot. Ask the French if 'English' is polluting their culture? Ask a Music Theory Teacher if Brittney is Pollution? Ask a health expert if McDs is Pollution? Ask a National News Editor if blogs are polluting the national press, etc, etc.

That said, (per wikipedia) "an externally occurs in economics when a decision causes costs or benefits to stakeholders other than the person making the decision".

Not only are there very few if any 'decisions' that players make that don't in someway cause a benefit or a cost to other players in MMORPGs, but I think there are more than a few people that would argue that emergent behaviour is a central design element/expectation of any MMOG that has over 50 people playing simultaneously.

If I were to have any concerns here, it is that there seems to be a prevailing need to 'Demonize' certain activities before players demand that Devs change the design to how they would prefer it. Personally, I wish that we could state the obvious argument: 'different players want different experiences', and then say to any MMOG company that wants to have a killer mmorpg with millions of people playing: you'd better build a platform that allows for all the many different player styles out there. While market parsing is a good start, if anything, the ability for members to 'self parse' into the experience they want would be the approach that I would recommend. In fact, when MMORPGs get the breadth of experience customization Secondlife is going for, within the context of a central themed world, I think we will really start to see some fun things (not that fun things aren't already happening of course).

Ok, enough on that, I'll write more on the actual topic here later tonight...



First and foremost, this was a great read!! Besides making me want to run off and buy the Civ4 game before I should (no, I can wait another 23 days, I'm sure I can!), I think it does a great job of giving a quick and concise overview of the major economic steps that humanity has gone through. I also loved the line about Sir Isaac Newton.

Now the question:
Q: "Do you consider the economy implemented in your favorite MMOG to be "advanced" compared to the current real-world Western economic system?"

Yes!!! Without a doubt the economy that the WoW community participates in together, in my opinion, is clearly on the cutting edge of modern economic development. That said, I’m not sure that was the question, or the intended question, as the economy that the global WoW community participates in is very different than “the economy implemented by Blizzard in the world of WoW”. The simplest and most convenient example here being RMTs, which is an economic reality for the WoW community (to the tune of many millions of dollars a year) while being a feature that Blizzard is not expected to take any credit for anytime soon.

While I’ll be the first to admit that I’ve been waiting for many years, and expect to wait for many more years, before my dream of playing in a “Civ4 meets Lemmings meets SimCity MMORPG” becomes a reality, and yes, I hope it has every little detail that these others games have with the polish of Wow and the development budget the size of a Middle Eastern War deficit. Having said that, let me talk about the other point here for a few paragraphs.

In support of saying that the current economy that the WoW community is participating in is at the cutting edge of global economic development, it might be good to for me to first state where I think economics (in the RW) are going.

Simply stated, what if we asked the following question; in the following sequence what comes next? Mercantile, Commercial, Industrial, Service, Information, ________.

My best guess is that we are heading straight for the Social Economy (note: not 'socialist economy'), this is an economy that is different than any we have seen. It cares very little about geography, or country boundaries. It will know very little of ‘scarcity’ (the only thing that will be scarce is scarcity) where most, if not all basic resources will be readily available to ensure that people (in most nations) live very long and physically healthy lives.

So why call it a ‘Social Economy’? Because it is becoming more and more clear that there will not be a product that is even moderately successful that does not have a major social impact or at least a very strong community built around it. Nor will there be any moderately successful companies that do not have very strong communities both within the company and without the company supporting it on both sides. Nor will there be any significant public voices (read ‘press’) that make any sort of impact without having both a strong community base and a clear social impact. I think this will be true all the way up to the Multinational/Global levels of economics, and true clear down to basic micro-economic level of less than 5 person organizations.

While these may be strong statements, at some point, I think it’s possible that they will become circular logic as we more and more define ‘successful’ as something that has a strong social impact and/or something that has a strong global community built around it, assuming that we don’t already define success this way.

Another key characteristic of the Social Economy will be the fact that many of the other ‘key’ economic pillars that we have today will not be 'as important' in the future as they have been in the past. For example, once we domesticated animals, ‘hunting’ became less important. And once we started making synthetic clothing/building materials/manufactured goods, etc; agriculture, which only employs a very small handful of people today, has become much less important in the current economy. Thus, I think the point that I would like to make here is two-fold, first that the ‘lack’ of printing presses, or steam engines, or merchant ships, or state regulated corporate structures hardly disqualifies a future economy from being classified as ‘advanced’, any more than the lack of a high percentage of people that kill wild boar for a living disqualifies the modern day economy from being defined as more advanced than the economies for yesteryear. Secondly, in a similar way, the lack of these same things in the economies that MMORPG communities participate in today, likewise should not disqualify them from being classified as ‘advanced’.

Summed in a nutshell, the Social Economy driven Organizations of tomorrow will be just as concerned with being first to market with new 'social value' as the Mercantile (Commercial/Industrial/Service/Information) Economy driven Companies of today are concerned with being first to market with 'mercantile' (commercial/industrial/service/informational) value.

What else do I see in the economy that surrounds Wow? How about software (macros/UI enhancements) that is created for ‘free’, distributed for ‘free’, available to anyone/anywhere in the World that greatly increases the value of an already very strong business, and the productivity of literally millions of people. If we are to say that WoW gold has RL value, and if we are to assume that the fact that millions of people are using this software to increase their efficiency to accumulate that wealth, than by the rules of Mercantile, Commercial, Industrial economics, the producers of that software should be holding out for huge sums of money, and very unhappy when they don’t get it. But, they are not. Why? In my opinion because they are looking for social compensation, a compensation that is not a valid form of payment in most sectors of the modern day economy. Services and Information within the Wow community also seem to be following this same trend. How many millions of hours of forum posts, player gathered facts, player-to-player conversations, professional analysis etc, etc, etc have there been that equate to millions of RL$ in increased efficiency has there been?

Note: I am in no way ignoring the millions of RL$ that are being spent/collected within these economies, I am just stating the opinion that for most people this is but a small part of the whole Social Economy. For example, while only a small percentage of people in the RL economy work in agriculture, we all eat agricultural products every day. And, yet, a modern-day economist might downplay the importance of having a strong agricultural sector if more modern sectors are booming. (for example Japan seems more than happy to trade cars for fruit and meat) In that same way, I think that while RMTers will be a reality for most players in the future, because the % of people that participate on the production side (of things being sold for RL$) is so small, we will most likely continue to see much more focus on the player side to goods/services/information being traded for social currency than federal.

Again, I would classify this closer to what I expect for the future of real life economies, than I would classify this as being close to anything we have seen in humanities' past, and as such, I’m somewhat compelled to classify these economies as being more 'advanced', rather than the contrary.

I could write more, and should document much more. But, let me close with a quick question…

Q: Outside of virtual goods and virtual currency how many other products do you see on eBay that are being produced by someone in Beijing and being purchased/delivered/used the same day by someone in Idaho? Now, add in all the goods and services that are being produced by someone on the other side of the world, and being purchased on this side of the world via Orgrimmar and IronForge. Even if we discount the fact that these economies are the seedlings of the coming Social Economy; even if we restrict our definitions to the purest and most practical modern economic terms, there are very few goods or services in the real World that move (are growing) at the pace of virtual goods and services.



"Externalities imply regulation" is not likely to be a helpful framework for prohibiting RMT, since all economic transactions in a PVP game have, by their nature, non-excludable externalities. Consider, for example, a fairly common "gold and materials for weapon damage enchantment" swap. There is an obvious negative externality to the competitive success and honor farming efficiency (and quite possibly the "fun", who knows) of the next person the buyer in this transaction meets in a BG -- this does not, however, suffice to justify government regulation of their transaction.


Thanks for the detailed comments, Bruce. Whatever we call it, like you I can imagine the "next thing" being some highly social function (possibly riding on a new technology or organizational form) that further integrates more people -- and more of each person -- into the world.

As for whether current MMOG's are "advanced" relative to the economic stages seen in this world so far... I think I understand your point. Economic activity is like water; it flows around obstacles to happen however it can. People playing in virtual worlds import their real-world economic expectations into their game worlds, and create systems to achieve those expectations.

To answer this, I'd point out that while these informal systems are important, they aren't the same thing (that is, they aren't as effective) as virtual worlds themselves explicitly providing and supporting these capabilities for economic action. Explicit support tells players that what they're doing is OK, leading them to do more of it.

It was to try to identify what some of these transaction-increasing capabilities might be that I worked up my essay. But as I noted, it's important not to get hung up on the specific forms of the capabilities I listed. It's not what they look like that matters -- it's their function that counts. It wouldn't have mattered if Gutenberg had dreamed up some other way to transmit more information faster; what matters is that a technology was created that allowed this effect to occur.

So it would be for MMOGs. The specific forms of economic support systems that MMOGs could implement aren't as important as that some systems are created that enable the effects I described. What matters is that players gain more ways to transmit value, and that more value can be transmitted per transaction. Every one of the techs and orgs I listed increased one or both of these two effects (which is why I listed them and not other interesting innovations). This is why implementing any of the innovations I described would significantly advance economic activity inside most virtual worlds, no matter what forms those innovations might take.

And I'd like to mention again that I'm not pushing this just because I think "more economic gameplay would be cool." The value of increasing the velocity and impact of economic transactions in a virtual world is that it gives participants more satisfying things to do, and better satisfies the needs and desires of everyone in that world... just like in the real world.

A more advanced economy makes for a more enjoyable world. I hope I can persuade more designers to consider acting on this... right after they get done tweaking that combat system, of course. *g*



Hi Bart,

Thanks again for this great paper!!

Bart> "To answer this, I'd point out that while these informal systems are important, they aren't the same thing (that is, they aren't as effective) as virtual worlds themselves explicitly providing and supporting these capabilities for economic action. Explicit support tells players that what they're doing is OK, leading them to do more of it."

A few points:
"they aren't as effective"
While the real question may be ‘how do we define effective?’; without splitting to many hairs here, let me suggest that economies (including the one players participate within the VW, and the one they participate in outside the VW, as well as the RW economy that Devs participate in) are often self-tuning to be ‘efficient’, not necessarily ‘effective’. For example, is it more effective to have a Doctor that can make a house call within 5 mins notice for even the smallest of injuries or have everyone keep a first aid kit at home and rush to the emergency room when needed? I think few would argue that the former isn’t more ‘effective’ in ensuring that proper care is administered when needed. That said, our 'advanced' economy has opted for a different system, one in which unless you have an extremely serious injury, you can expect to wait 30-90 mins at your locally centralized emergency room if you need to visit, and its best if you’ve pre-wrapped whatever needs looking at before you go.

“Explicit support tells players that what they're doing is OK, leading them to do more of it.”

Agreed, but there are a few questions/points I might make here;

A) If you are expecting Devs to define ‘what is OK’ for players to do and not do, I think this is an extremely high expectation of what will most likely be the role that Devs play in the future development of Online Communities. Devs, as well as Development Companies, as well as Publishing companies, as well as Distribution companies, as well as Retail companies all have very serious business/legal/financial restrictions as to what activities they can and can not authorize. Facilitate yes, but only to a certain degree.

B) While I fully expect my great-great grand-kids to participate in VWs that not even the greatest Sci-Fi writers of today can predict; for today, tomorrow, and for the foreseeable future there are serious budget restrictions that Devs have to deal with. As part of the design process there is not a MMOG company today that doesn’t ask themselves, is this part of the experience something that we bring-into the game, or leave outside? And, is it something that we do or is it something that we leave to the members to do themselves? Forums/TechSupport/Billing/Newsletters/Marketing/Conventions are all things that MMOG companies do that are currently ‘outside the world’. Guild Forums, is something that Dev companies leave to members to do most the work, in the case of EQ2 they have supported these forums (outside the world), in the case of Blizzard they have purposely left this function as something outside their support for now. Could they build their own VoIP system and integrate it into the game giving us RP-PVP-VoIP servers? Sure, np. Have they chosen to delay that? Yes. Why? In hopes of focusing on ‘tuning the combat system’, etc as you’ve pointed out.

C) I think “Explicit support” is also a tough line to draw. Would I prefer that Blizzard developed an auction system that showed a few more stats than what they have today, or for Blizzard to further build-out the current system (with a few less bugs) where players can use UI scripts to scrape/collect/export/churn/and analyze the auction data in any way they want? Would I prefer that Blizzard build better maps, or put links in the forums to the best player built maps? While the lack of very cool fully interactive, data driven maps is most likely driven by financial restrictions on the Dev side, this decision to not build this section of the experience out also opens up huge new economic/social roles for members to fulfill. I remember the first time I found eqatlas.com, I don’t think I could have thought more highly of that person if they had 20 lvl 65s all with a full cabinet full of epic weapons. The same is also true of the Daedalus Project today, as well as Thottbot, Allakhazam, Worldofwar.net/cartography, etc, etc. Each of these latter groups could have 20 level 60s on ever server each with a heard of epic mounts and they wouldn’t have the unique opportunity to add the unique value that they do today to the WoW community because ‘the Devs didn’t explicitly support these functions’. If the goal of a VW is to allow member top form strong self-supporting communities, it is often times better that they don’t explicitly support an activity and instead open the hole, provide the API, and step back while players do what they do best; which is take what they have been given and run with it.

While the many hard-core Immersives here on TN may not want to hear this, Emergent behavior outside the Virtual World is as much a part of the whole planned experience, as the experience within the Virtual World. The Gutenberg function, is very much placed outside many VWs on purpose. Not only is much of the outside activity planned for, it is hoped for, it is designed in, it is encouraged, and it is greatly rewarded (often times 'outside the game'). Much of the outside 'bad' Emergent behavior is anticipated, and much of the outside 'good' Emergent behavior is greatly appreciated. On the business side, I think there are few Devs that would argue that a strong, vibrant community ‘outside’ their VW isn’t a serious competitive advantage in the industry today.

As such, I fully anticipate that interreality socioeconomic activity to continue to grow at an accelerating pace.



I agree that "Emergent behavior outside the Virtual World is as much a part of the whole planned experience, as the experience within the Virtual World"

Wizards of the Coast as done much to build a social community on their D&D property. They have made the core system open source and thrive upon being the primary commercial caretakers of this property and allowing the community to build upon it.

Ebay, Amazon, Yahoo also have move much forward in the commercial area by allowing third-party developers to tap into their core informational assets.

Thus, the organizing form for the information age is net communities (which benefits from large scale network effects).

With the ability to benefit from large scale network effects, I think the next stage is information emergence.

I think we are near the point where we can quickly analyze a very large set of information to systematically yield new "discoveries". This is clearly Google's vision to facilitate this. So, maybe in a few years we’ll class the enabling technology as Google Everything.



Insofar as progressing beyond the simple trading economy (creating the banking structures, etc.) present in current MMORPGs, a prerequisite will be placing control of inflation almost completely in the developers' hands. It's an oft-repeated maxim of monetarism (at least at my college...I really can't gauge how typical it is) that once a government surrenders control over its money supply, hyperinflation is the result. Unfortunately, taking away aspects of gameplay that can cause currency to be created may have a dramatic impact on gameplay (e.g. removal of sales to non-player characters) that would not go over well. Second Life's Linden Dollars system (with allowances) is a step in the right direction, but Linden Dollars are still "created" and "destroyed" in trading for real-world currency in a way that is not completely under the developers' control.

With this in mind, perhaps the question is not so much "Why are MMORPG economies not progressing beyond trading economies?" as it is "Would a MMORPG economy that is in the mercantile stage or beyond be palatable to individuals wishing to exist within that MMORPG?"


John Beety> perhaps the question is not so much "Why are MMORPG economies not progressing beyond trading economies?" as it is "Would a MMORPG economy that is in the mercantile stage or beyond be palatable to individuals wishing to exist within that MMORPG?"

That's a fair question. My essay was more about the "what" than the "how" -- that is, I was less concerned with how developers should implement advanced economic features than I was with what those features might be.

It was a judgement call. Delving into the possible mechanics might have improved the utility of my essay for the working designer by addressing some of the "it's impossible because" arguments. On the other hand, I've learned to be cautious about telling people how to do things. I find General Patton's approach more effective -- I look for bright people and tell them what I want, then they surprise me with their creativity.

That said, there are definitely some serious questions that I'd want to think about as a designer before I tried to implement any of the more advanced economic functions suggested. You brought up two of the most important, those being inflation and the larger question of who controls the money supply.

For example, I noted that one of the effects of an advanced transportation technology is to expose new sources of valuable commodities. But what happens to the economy of the society that obtains access to a considerable amount of one of these resources? In Western history, the discovery and exploitation of vast quantities of gold and silver destabilized the economies of Western nations... wouldn't the same thing be possible in a MMOG that allowed exploration and extraction of resources? What if the value of the currency of the exploiting economy wasn't pegged to any particular resource -- would rapidly increasing the internal quantity of any high-value resource still cause inflation?

These are just a few of the economic questions a designer might need to ask before implementing advanced economic features. There are also questions that could be asked from a player's point of view, such as: What do I have to do to get the things I want? Some players will enjoy a deep economic game, but others will consider any economic activity to be an unwelcome imposition on their play time -- they just want to get their gear and go a-hunting. To what degree can you let some players bypass deep economic activity? How much and what kinds of advanced economic gameplay will non-economic players accept?

Ultimately I come back to my closing comments. The economic features you need, just like the combat features or narrative features you need, should be dictated by the kind of game world you're trying to create. If your intention is to enable a "deep" world, then I believe you'll benefit from offering your players an economic system that's more advanced than a Trading economy.

Doing so means accepting the challenge of designing an economic system that gives players lots of ways to create and move value while being monitorable and to some degree controllable by those running the game world. That's a difficult challenge, but taking on such challenges is exactly what MMOG designers ought to be doing.



Hey all, I know this post hasn't been touched in a few weeks, but I wanted to point to a lengthy response I wrote out to Bart's great essay. You can read it here Thanks!


Another belated note of only passing relevance, but Eve-Online just saw the launch of it's first player-run banking intitiative.

For full details, see the game forums here:

Even when this is not a true bank, but more of a pawnshop type of enterprise, it does take us one step closer to the point at which true banking will be a part of this virtual world.

Already, a large part of this contruction depends on valuation of virtual assets. With the kind of expansions CCP (Eve's developers) seem to have in mind for the next years, that small step towards true advanced economic features is just a small one from here on.

And the best part of course is the fact that it's exactly player intitiatives like these that CCP will empower with additonal features designed to support.

That, I guess, makes Eve one of those worlds designed to be 'deep'. Yet no player finds any hindrance from the fact that few other virtual worlds offer the economic complexity this one does.

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