Law and Economics in Second Life
The most interesting subject that I have studied in grad school is law and economics. The University of Chicago has dominated this sub-field for many years because of faculty members like Ronald Coase (Coase Theorem of transaction costs), Judge Richard Posner, Milton Friedman and Gary Becker. The University of Illinois has its own standout in the field: Tom Ulen. I’ve had the good fortune of taking a few classes with Prof. Ulen. The most interesting one has been Law and Economic Development.
The book assigned for that class, The Elusive Quest for Growth, was fantastic. The book quotes Nobel laureate economist Robert Lucas as having said, “Once you start thinking about economic growth, it is hard to think about anything else.” There is no issue more important for America or for my generation than helping Third World countries grow. People in those countries are dying because their economies cannot feed them. People in those countries are living without human meaning and expression because their economies cannot give them leisure time. Wealth grants leisure time, which is freedom. There is no art, no music and no philosophy without wealth.
The final paper that I wrote for that class explored the economic growth of Second Life, the online virtual world that allows you to create and do whatever you please. Virtual economies present interesting problems to economists like whether a virtual good that has no scarcity has any real value, whether real-world governments should tax them and whether they could develop into legitimate, large economies.
You can download the full paper here. You can download an Excel file full of Second Life data here. And yes, I realize that only Tom is crazy enough to download this paper :)
Comment by Brandon Ruiz on 1 July 2008 at 11:37 pm:
I read the quest for growth book years ago and from what I vaguely remember it was actually pretty interesting. If I’m not mistaken a basic conclusion of the book was that without public investment in basics, education, public health, infrastructure, the rest was hard to come by.
Comment by Anonymous on 3 July 2008 at 9:04 am:
I read the article. I think that you’re essentially correct that time is the true commodity, but there are other factors which have been built into mmorpgs to create scarcity and therefore demand for particular items.
For example, there are various items which my character can craft in World of Warcraft which are not readily attainable, because it takes many months of work by a dedicated team to get to the area where those crafting recipes are available for purchase. This means that the good that’s crafted costs more, in in-game money, than its raw materials.
One perverse effect of many in-game economies is that games which have crafters often see the price of raw materials go much higher than the finished product, because virtually every player is levelling a crafting profession of some sort, making demand for those raw materials very high. Demand for the output of those professions is, in comparison, fairly low. I don’t know whether this occurs in Second Life, but it wouldn’t surprise me if it did.
Most games do not allow cash–ingame cash transactions to occur, and ban accounts or isp’s associated with such activity.
Comment by БOГИHЯкaвкaзa on 29 May 2009 at 10:20 pm:
Да уж Читаю и понимаю, что ничего не понимаю о чем речь:)
Comment by чимчим on 18 June 2009 at 6:42 am:
Я, хоть и не постоянный читатель, но всё же скажу свое мнение. На ваш сайт попал практически случайно. Однако узнал много чего нового и интересного. Так что, как говорится, АФФТАР ПЕШИ ИСЧО! :)
Comment by Степан on 26 June 2009 at 8:26 pm:
Можно и поспорить по этому вопросу, ведь только в споре зарождается истина. :)
Comment by Video Master on 23 August 2011 at 8:17 pm:
You know what, your posts are usually an interesting read, but this time around – for me anyway I feel like it is put together a little hasty.I may be wrong about it, but this one just doesn’t flow like other posts. Sorry about that.