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 – The software maintains a record of the state of the world, regardless of whether or not anyone is using it.
2. Scarcity – Users must expend time, money, or some other resource to obtain some of the desirable goods and services in the synthetic world.
3. Specialization – Users must be able to obtain at least some of the goods and services they desire from other users.
4. Trade – Users must be able to transfer goods and services to and from other users.
5. Property Rights – 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 (http://www.ebay.com) (search "Ultima Online", or "DAoC" for Dark Age of Camelot) and PlayerAuctions.com (http://www.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. “Virtual Worlds: A First Account of Market and Society on the Cyberian Frontier,” CESifo Working Paper No. 618 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=294828), December 2001.