Synthetic economies

A synthetic economy is an economy generated by a software program that
implements a multi-user domain (MUD) on the internet. The largest synthetic
economies are currently found in massively multiplayer online roleplaying
games (MMORPGs), such as EverQuest, Ultima Online, Dark Age of Camelot, and
Lineage. Synthetic economies also exist in life simulation games such as The
Sims Online. An economy can be said to exist in these computer-generated
worlds whenever the following five conditions are met:

  1. Persistence Ð The software maintains a record of the state of the
     world, regardless of whether or not anyone is using it.
  2. Scarcity Ð Users must expend time, money, or some other resource to
     obtain some of the desirable goods and services in the synthetic world.
  3. Specialization Ð Users must be able to obtain at least some of the
     goods and services they desire from other users.
  4. Trade Ð Users must be able to transfer goods and services to and from
     other users.
  5. Property Rights Ð The world must record that a given good or service
     belongs to a certain user, and the code must allow that user to dispose
     of the good or service according to whim.

These conditions embed users in an environment characterized by choice under
scarcity, specialization of skills and production, and gains from trade with
other users. Choice, scarcity, specialization, and gains from trade are at
the core of the class of problems studied by contemporary economics.

Synthetic economies perform useful resource-allocation and entertainment
roles within MUDs. They also interact with the Earth economy. US dollar
markets for synthetic-economy goods, currency, and services may be observed
at online auction sites such as Ebay (search "Ultima Online", or "DAoC" for
Dark Age of Camelot) and PlayerAuctions.com (search "EQ" for EverQuest).

According to standard conceptions of economic value (see the subjective
theory of value), the goods and services of synthetic economies are endowed
with real value. The value of a good is determined by its users, and is
measured by their willingness to give up resources to obtain it. MUD users
are willing to devote both time and Earth currency to obtaining synthetic
goods, making these digital assets as real as any assets on Earth.

The largest synthetic economy is Lineage, based in Korea, with more than 5
million users. The location of its online market, if it exists, is unknown.

For more, see Castronova, E. ÒVirtual Worlds: A First Account of Market and
Society on the Cyberian Frontier,Ó CESifo Working Paper No. 618, December 2001.