Two Economic Issues in Virtual Worlds

The extensive connectedness of the Internet has allowed people to connect and communicate in various ways. This connectedness had given rise to virtual worlds and games that have allowed people to live virtual lives and take part in virtual consumerism, giving rise to economic markets. Some of the worlds are multi-user video games, like Blizzard’s World of Warcraft , which players interact to complete goals, socialize, or buy virtual goods. Other virtual worlds, like Linden Lab’s Second Life, are purely for socializing, exploring, and using virtual objects. The virtual worlds contain marketplaces of virtual goods, such as virtual clothes and furniture, purchased from online stores or auctions using virtual currency (however, most virtual worlds need real word currency to get started in the world, buying, selling, and earning virtual goods.) Just like the real world, virtual worlds experience economic issues all their own that require special consideration by the companies that run those worlds.

Property Rights: Who owns that virtual widget?

One of the major issues with virtual economies is the problem of property rights. Virtual goods and real estate have a sense of persistence in that they exist even if the owners of the property are not online and using them. If the virtual worlds allow such property to be created, bought, sold, and owned, then the inhabitants of the virtual worlds would expect to own some rights to that property (whether they created it, bought it, or traded for it.)

However, two issues with the virtual property can arise. One, specific rules created by the real owners of the virtual worlds may override the natural rules that may exist naturally in the virtual economy.  For example, the end-user license agreement for World of Warcraft gives total ownership to all in-world property to Blizzard, the owners of the game (Glushko, 2007). Therefore, the company can choose to do whatever it wants with any property that has been crafted, sold, or bought within the game, including destroying the goods, redistributing it to other players, and resolving property rights issues however Blizzard sees fit. Players of the game have to agree to the license agreement before playing the game, so they knowingly enter into such an agreement.

Virtual property ownership and reclamation by a world’s owner has a comparison in the real world. One example is eminent domain: “the power possessed by the state over all property within the state, specifically its power to appropriate property for a public use” (Larson, 2004). Eminent domain has been used on several occasions by municipalities to take private property to use it to build a new road or park for public consumption. Usually, the private property is purchased by the government for a reasonable market-value, although sometimes it might just be taken.

The second issue with virtual property is the exploitation of the property by virtual world inhabitants. One such exploitation is when the property is attained via unauthorized copying of one participant’s virtual goods by another participant. In 2006, the Second Life virtual world was roiled by a program called CopyBot that allowed inhabitants to easily copy other inhabitant’s virtual items (Terdiman, 2006). In a world where virtual goods can be bought and sold, an easy duplication of a supposedly scarce good might reduce a person’s motivation for making unique goods thereby depleting the virtual economy of goods to transact.

The real world provides some safeguards against copying specific property via patent, copyright, and trademark laws. A copyright is a property right that can be granted to a person or a company by the government that prevents others from duplicating a specific artistic work (such as a book, song, or other intellectual work) that is covered by the copyright (USPTO, 2008). The copying of digital works, such as software, music, and DVD movies, is covered by copyright law, yet illegal copies are purchased offline on the black market or shared online via the Internet (Kirk, 2009). In the case of the CopyBot incident, Linden Labs even recommended that the affected virtual world inhabitants seek a remedy for their issues via the United State’s Digital Millennium Copyright Act (Terdiman, 2006).

Gold farming: money for nothing

A second major economic issue that can afflict virtual worlds involves its usage of virtual currency. Game players in developing nations have created a market for virtual currency for popular gaming virtual worlds through a process called “gold farming.” Gold farmers play the games for hours and hours to earn virtual currency (called gold in several popular games) in order to sell the virtual currency to  other players for real currency (Bailey, 2006). Such purchases of gold are forbidden by game companies, and consider gold farming a security breach and a violation of the end user license agreement. World of Warcraft even states on their website that “Players who buy gold are supporting spamming, botting, and keylogging – activities that diminish the gameplay experience for everyone else” (Blizzard Entertainment). Gaming companies have created environments of scarcity in their virtual worlds on purpose to make the game fun and give people a reason for playing (Kennedy, 2008), and gold farming can cut that scarcity and cause fun-reducing imbalances in the virtual world.

Gold farming doesn’t have a direct comparison to a real world economic issue; however, counterfeiting money might come close. Counterfeit money is an unauthorized and illegal copy of genuine currency, and creation of counterfeit currency is punishable by law in the United States (United States Secret Service).  But counterfeiting currency and putting it into circulation is no game, and can damage a nation’s economy (United States Secret Service) and has been used to fun terrorism (Rachel Ehrenfeld, 2002).

Virtual worlds can offer an interesting place for real people to spend the leisure time and socialize with others around the globe. The enjoyment of virtual worlds can be damaged by some of the economic issues that have arisen in those worlds, which are issues of property rights and gold farming. Property rights issues may hinder people from participating in virtual worlds and creating a richer in-world economy if those people think their hard work of virtual property creation is taken or duplicated by others. Gold farmers can ruin a gaming virtual world for people by creating internal economic imbalances and security issues (via account sharing and keylogging.)

Virtual worlds are not all bad, however, and can give real-world economists and participants with interesting models of the real world. For example, Lin has suggested that virtual worlds can provide a place to test out issues of virtual consumption, and even help prevent real world resource consumption by satisfying a person’s desire to consumption virtually (2008). Jones believes that virtual worlds can be used to observe macroeconomic issues within a smaller virtual setting, such as Second Life (2009). Second Life is generally controlled by the “invisible hand”, however Linden Labs has ultimate control over the world parameters and has to exercise its control over monetary policy due to issues of gambling and investment (Jones, 2008). Whether virtual worlds are here to stay, or are just passing fads of the current digital culture, they offer economists a place to study real world concepts in a live and more controlled setting.


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Blizzard Entertainment. (n.d.). Purchased gold comes at every player’s expense. Retrieved July 9, 2010, from World of Warcraft Web site: http:/​/​​info/​basics/​antigold.html

Glushko, B. (2007). TALES OF THE (VIRTUAL) CITY: GOVERNING PROPERTY DISPUTES IN VIRTUAL WORLDS. Berkeley Technology Law Journal22(1), 507-532. Retrieved from Business Source Elite database.

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Kennedy, R. (2008). Virtual rights? Property in online game objects and characters. Information & Communications Technology Law17(2), 95-106. doi:10.1080/13600830802204195.

Kirk, Jeremy. (2009, February 19). Users revert to Usenet as P2P monitoring bites. Retrieved July 9, 2010, from Computerworld UK Web site: http:/​/​​management/​online/​e-business/​news/​index.cfm?newsid=13443

Larson, Aaron. (2004, July). Eminent Domain. Retrieved July 9, 2010, from ExpertLaw Web site: http:/​/​​library/​real_estate/​eminent_domain.html

Lin, A. (2008). Virtual Consumption: A Second Life for Earth?. Brigham Young University Law Review2008(1), 47-114. Retrieved from Business Source Elite database.

Rachel Ehrenfeld. (2002). Funding Terrorism: Sources and Methods. In Confronting Terrorism. Retrieved July 9, 2010, from Air University Web site: http:/​/​​au/​awc/​awcgate/​lanl/​funding_terror.pdf

Terdiman, Daniel. (2006, November 15). ‘Second Life’ faces threat to its virtual economy. Retrieved July 9, 2010, from Cnet News Web site: http:/​/​​2100-1043_3-6135699.html

United States Secret Service. (n.d Know Your Money: Advanced Technologies in Counterfeiting. Retrieved July 9, 2010, from United States Secret Service Web site: http:/​/​​money_technologies.shtml

United States Secret Service. (n.d.). Know Your Money: It’s the Law. Retrieved July 9, 2010, from United States Secret Service Web site: http:/​/​​money_law.shtml

USPTO. (2008, September 9). What is a Copyright? Retrieved July 9, 2010, from United States Patent and Trademark Office Web site:


About jpthomp137
Techie/student/husband/father interested in new technology, social media, and innovation.

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