Video Game Theory

The virtual worlds Castronova refers to are gigantic multiplayer online video games, such as Everquest and World of Warcraft. In addition to buying the games off store shelves, players pay a monthly fee to participate. (More than six million monthly fees in the case of World of Warcraft, the newest and most popular virtual world.) When a player logs off for the night, the world and the rest of its inhabitants continue to exist in the cyber-ether. Because the game’s setting continues to evolve even after the computer is shut down (other players in different time zones battle ogres and make progress in the search for secret potions and whatnot), there’s some debate over whether they are games, like a new Pac-Man, or places, like a New Pakistan.

In December 2001, Castronova posted a short paper online analyzing the economics of Everquest, one of the earliest such games. A little more than a year later, that paper, “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier,” became the most-downloaded article from the Economics Research Network’s collection of online academic material. Today, it’s also the third most downloaded paper from the Social Science Research Network.

Castronova soon parlayed his time as an internet sensation into a gig as a telecommunications professor at Indiana University, and he also came out with a book, Synthetic Worlds: The Business and Culture of Online Games. He was among the first to argue that video games and virtual worlds are worthy of academic study. His interest in Everquest began as a player and enthusiast. But the economist in him was fascinated by the bustling trade in virtual items (swords, armor, and the like) that took place in Everquest’s fantasy world of Norrath–and then spilled over, at least to a limited extent, into the real world, with instances of Norrathian weaponry and other virtual goods up for sale in U.S. dollars on eBay.

Subscribers to Everquest and similar games represent a small, if growing, subculture. But could virtual economies one day impact or intersect with real economies on a larger scale? Castronova thinks so. He argues that there is a “porous membrane” between the real world and the virtual, and that the existence of online worlds will soon have to be reckoned with in the fields of law, policy, and economics. Those eBay trades mean that Norrath has an exchange rate, a gross domestic product, and all the other hallmarks of a national economy. The gold pieces in these worlds aren’t Monopoly money, he argues. They’re new national currencies.

Already, these virtual worlds have had real economic effects in the everyday, offline world. So-called “virtual sweatshops” have emerged in China, where workers earn money by spending hours each day in virtual worlds, acquiring items and then selling them to relatively time-poor but money-rich Westerners. As Castronova notes, more than half of the 40,000 computer crimes in South Korea in 2003 were related to online gaming, as criminals hacked into players’ accounts to loot and then fence their valuable virtual property.

Scholars are debating the nature of these virtual property rights. Who owns these goods: the players, or the game makers? Could the IRS tax players on the value of their virtual property, even before the goods are traded on eBay and converted into U.S. dollars? Can the game makers–some of whom loathe the offline trade in virtual items–ban real-world trading of virtual goods, or do players have rights that can’t be taken away? (One virtual world, Second Life, gets around that dilemma by granting its players the intellectual property rights to the virtual goods they create.)

What about free-speech rights? Castronova frets that game players typically forfeit “virtually every meaningful civic right” when they check the box that says “I Agree” to a long set of rules (that no one reads) before they set foot in a virtual world. In one notable case, the makers of The Sims Online banned a player for publishing a Weblog about the game–a blog that reported on a cybersex brothel with child prostitutes.

Unfortunately, in speculating about the growing significance of these games, Castronova often lapses into technotopian daydreaming. For instance, he muses on whether “synthetic worlds might also shatter the current view of objective reality and, for kicks, alter the nation-state system that has dominated international affairs since the Peace of Westphalia.” He’s doffed his economist hat and donned his futurist one for much of the book, and the results aren’t pretty.

Fanciful speculations aside, Castronova’s main point that virtual worlds exist as more than lines of code is not so easily dismissed. Even if the numbers of people who emigrate to virtual worlds is too small to provoke a national crisis, these games are still a permanent and growing part of the online frontier, and they will continue to have effects that bleed into the offline world.

Liberals could learn something from the best chapter in Synthetic Worlds: “The Economics of Fun.” Drawing upon his experience as a game player and his expertise as an economist, Castronova assembles a list of characteristics that make a virtual world fun. Alongside risk, competition, and acquisition, he lists fairness and equal opportunity. Every new player begins “life” with an identical allotment of abilities and equipment. Inequality quickly surfaces, but players don’t mind because they understand that the rules of the game are fair and equitable. “Humans seem to prefer the challenge that inequality represents rather than the security that equality affords–with one very important proviso: everyone’s status at the start of the game must be equal,” Castronova writes. Of course, video game designers aren’t concerned with political ideals; they just want to create a world that’s entertaining.

Perhaps there’s 2008 campaign-slogan potential here: It’s time to make America fun again. And let’s get it done before everyone moves to Norrath.

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