Comments on: The Everquest Economy (crossposted at johnquiggin.com)

By: Jeremy Neal Kelly

Jeremy Neal Kelly — Sat, 29 Jan 2005 22:54:34 +0000

> The positive economics of all this are interesting > enough. But how about policy analysis? Who > benefits and who loses from this kind of trade, > and do the benefits outweigh the costs? Unfortunately I’m traveling this weekend, so I don’t have much time to participate in this discussion. However, I recently finished a paper that addresses this very question. It can be viewed here: http://www.anthemion.org/Words/words.html > A second, more neoclassical, point is that, if > Norrathians are heterogeneous, there may be > real gains from trade. Time-poor cash-rich > players may prefer to sweep past the obstacles, > using money to smooth their path, while others > may be happy to defray some of their costs by > selling surplus items. I’m not sure if this works > (why can’t the game owner capture all these > rents and lower the average entry price), but it > seems like an interesting argument. The paper broadly follows these lines. It also offers a brief analysis of the owners’ ability to capture this trade surplus through the sale of game goods (I call this trade ‘fiat sale’). You might find it interesting.

By: Tracy

Tracy — Sat, 29 Jan 2005 17:32:39 +0000

And I have just realised that in my responses above, I forgot to cover where the money the Norrathians spend on virtual assets comes from, since spending a dollar on the game means that you are not spending a dollar in the ‘real’ economy – although presumably the Terrans eventually will. If the Terrans and the Norrathians differ only by whether they want to play in virtual worlds then there’s no net impact on Terran employment or wages (as the Terrans would have otherwise earned the same dollar another way). If there are barriers to other sorts of trade between the two groups, e.g. tarriffs or just living in different countries, so in the absence of the game less trade would have taken place due to economic inefficiences, then employment or wages would rise amongst the Terrans. I was thinking too much of Mexicans and Americans and forgot to generalise the case. So if we assume negative externalities to increasing the supply of goods in the games, the case for stopping trade in virtual goods to benefit the public interest is stronger if both sides are in the same country than if they are in different countries. And the case for banning is weaker again if you assume different utilities and disutilities for different players. There is nothing in the real world to stop someone from both enjoying playing the game and being happy to sell some goods, or to, while they would not pay to play the game, prefer playing the game for money to working in a shop for the same amount of money. If the Terrans sort themselves out into ones who least dislike playing the games and ones who least dislike working in the shop, there are definite gains from trade. Which is why apparently Truman said he wanted only one-handed economists, because whenever he asked an economic advisor a question he got a response saying “on the one hand … on the other hand …”

By: Tracy

Tracy — Sat, 29 Jan 2005 13:18:09 +0000

Sorry for double post. Got an error message on the first & thought I had to rewrite.

By: Tracy

Tracy — Sat, 29 Jan 2005 13:13:53 +0000

Assuming that the supply of Terrans is not infinite, the trade will make Terrans better off, including Terrans that never work in the virtual economy. This is because as people are attracted to work in the virtual economy, there are less people available to work in the ‘real’ economy, without a corresponding drop in demand, so wages will rise. Or, if we step away from strict classical economics and allow some involuntary unemployment amongst Terrans, instead of wages rising employment might drop, or both might rise to a lesser extent. Your model only produces that prediction because it ignores the question of where the Terrans come from and what they would be doing if the virtual economy did not exist. Therefore we cannot assume that a welfare improvement can be realised by prohibiting trade without some empirical work on the magnitude of the negative externalities and the rise in wages amongst Terrans. In our world, to step away from hypothetical models, I don’t expect there to be any measurable impact on wages from the increased job opportunities in virtual economies, due to the massive number of things that are also changing at the same time and the error rates in what statistics are collected.

By: Tracy

Tracy — Sat, 29 Jan 2005 13:04:02 +0000

Assuming the supply of Terrans is not infinite, Terrans would wind up better off as a whole, including Terrans who never play the game at all. As Terrans are drawn to the virtual world, all other things being equal, wages would have to rise slightly for Terran occupations in the real world. (Supply of labourers is falling, while demand isn’t). Or, if we step outside strictly classical economics and include some involuntary unemployment in our model, employment might rise and unemployment fall, or both wages and employment might rise. In this world, I wouldn’t expect any increase in wages due to gaming to be actually measurable, since millions of other things are happening at the same time. But your model only produces no gains for the Terrans by ignoring the question of what the Terrans would otherwise have been doing. Whether the disutility to the Norrathians from the negative externalities outweighs the gains to the Terrans is not answerable from theory and is probably impossible to answer confidently in practice. However, given the increase in income to the Terrans, we cannot assume that prohibiting trade would be a Pareto-enhancing improvement.

By: doug

doug — Sat, 29 Jan 2005 07:26:06 +0000

actually not a totally accurate summation as players are not necessarily competing against each other but against the game iitself. so if a player buys or gets a +10 sword rather than use a +1 sword he will gain levels faster and reach top level faster. which is one of the main game aims. on the player vs player servers it is likely to be more competitive tho.

By: Dan Hunter

Dan Hunter — Sat, 29 Jan 2005 03:24:44 +0000

I didn’t get a chance to comment earlier today, and things have moved on. So I’ll just make a couple of observations based on John’s last comment: >Sebastian and asg, if more items and easier >progress make the game better for >everyone then there’s a design flaw in the >game as it stands. If you talk with the game devs and the power gamers and even some of the casual gamers, you’ll find (I think it’s fair to say) that they won’t agree that the actions of the eBayers are neutral. Nor will they agree that the mechanisms in place are good for everyone. The power gamers in particular have a peculiarly hypocritical view that those who purchase virtual assets are the lowest scum of the virtual universe, unless of course they are purchasing assets from the power gamer. The game devs know which side their bread is buttered and so spend a lot of PR effort cozying up to power gamers and demonstrating how active they are at policing the worlds. They fairly often use the kind of argument presented above by John as justification, ie that there are negative externalities in the world from the transactional activity outside the world. But mostly that’s just a smokescreen. Which leads me to my other thought, prompted by John’s observation: >A preferred Keynesian response is for the >Terran government to run productive public >works program. It is, I think, a mistake to think of these worlds as worlds. That is, the immediate response of economists and lawyers and policy makers is to assume that real world social phenomena are going to map cleanly to these virtual worlds, and that the usual economics/law/whatever can be applied here. This sometimes works and sometimes doesn’t. Perhaps the best example is the work that Ted Castronova has done about the nature of inflation in-world (usually called “mudflation” for reasons too arcane to worry about here), where he concludes that the real reason that mudflation exists is because it’s fun. Now this is not exactly the standard account of inflation, but what is perhaps most interesting is that virtual world observations and theories derived from them may actually provide useful insight into real world phenomena. But for the moment, we have to be pretty careful about the degree to which we can compare real world apples with virtual oranges (and vice versa)

By: asg

asg — Fri, 28 Jan 2005 22:50:59 +0000

John—Sorry, I wasn’t being clear. I didn’t mean “speed of advancement” as a direct “faster advancement = more fun” value. Rather, it’s a question of getting the advancement curve right. In WOW, getting to 10th level takes maybe three or four hours, but getting to 20th may take another 20 hours. That rate of advancement is ideally optimal for the majority of players; advancing too fast isn’t any fun because once you get some neat new powers, you want to spend some time actually using them before moving on to the advanced versions of those powers, etc. Advancing too slow is obviously no fun because that gets boring. This line of thinking also leaves out the social elements; many people find it fun to help lower level characters out (many also find it fun to ruin the game for other people, but those are Nozick’s utility-monsters). So having too few low level characters harms the social experience a little too.

By: John Quiggin

John Quiggin — Fri, 28 Jan 2005 20:02:55 +0000

And yet another typo fixed. Sorry for misspelling your name, Edward.

By: John Quiggin

John Quiggin — Fri, 28 Jan 2005 19:47:29 +0000

Sebastian and asg, if more items and easier progress make the game better for everyone then there’s a design flaw in the game as it stands. Yabonn, to quote the immortal Pigou “assume full employment”. You can’t easiy do this kind of welfare analysis in a Keynesian framework where unproductive work can generate social benefits. A preferred Keynesian response is for the Terran government to run productive public works program. Thanks by the way, to all who’ve contributed to this thread. I’m learning a lot.

By: greglas

greglas — Fri, 28 Jan 2005 19:42:03 +0000

As previous comments have noted, we’ve chatted this stuff up incessantly at Terra Nova. My quick comment would be that if this Jeremy Bethamesque approch to the legal regulation of markets raises eyebrows in relation to property rights on Terra Prime, it is going to be even more unstable and subject to critique when applied to Norrath, i.e. social activities involving games and play. But staying in the economic vein: you might want to consider is what do you do if your utilitarian calculus comes out in favor of external markets, but the property holder of the server comes out in favor of banning the market? Does the inefficiency of that decision provide a basis for utility trumping our normal presumptions of ownership?

By: greglas

greglas — Fri, 28 Jan 2005 19:40:40 +0000

By: John Quiggin

John Quiggin — Fri, 28 Jan 2005 19:40:32 +0000

Paul, thanks for picking this up. I’m always making mistakes like this. Fixed now, I hope.

By: paul

paul — Fri, 28 Jan 2005 19:19:13 +0000

One bit of the analysis I don’t understand. You (JQ) wrote: Each Norrathian is willing to pay a positive sum (in Terran dollars) for items, and we’ll suppose that this is initially lower than the cost to Terrans of collecting them. So, when the first Terrans arrive, trade begins. The Terrans are better off, … Why would Terrans come in and trade? How are they better off if the Norathians pay them less than it costs them…? I would think that this is a simple typo, except I don’t notice that anyone else has commented on it yet. What am I missing?

By: Andrew McManama-Smith

Andrew McManama-Smith — Fri, 28 Jan 2005 19:08:54 +0000

Despite the comment above, I actually am literate and usually I write with good grammar and spelling.