The Invisible Hand Goes Virtual

Millions of people now spend several hours a week immersed in “massively multiplayer online role-playing games” (MMORPGs). These are often Tolkienesque fantasy worlds in which players battle monsters, go on quests, and build up their virtual power and wealth ... Sociologists and anthropologists have written about MMORPGs before, but Mr Castronova looks at the phenomenon from a new perspective: economics.

Mr Castronova's thesis is that these synthetic worlds are increasingly inter-twined with the real world. In particular, real-world trade of in-game items—swords, gold, potions, or even whole characters—is flourishing in online marketplaces such as eBay. This means in-game items and currency have real value. In 2002, Mr Castronova famously calculated the GNP per capita of the fictional game-world of “EverQuest” as $2,000, comparable to that of Bulgaria, and far higher than that of India or China. Furthermore, by “working” in the game to generate virtual wealth and then selling the results for real money, it is possible to generate about $3.50 per hour. Companies in China pay thousands of people, known as “farmers”, to play MMORPGs all day, and then profit from selling the in-game goods they generate to other players for real money.

Land and other in-game property has been sold for huge sums: one “Project Entropia” player paid $26,500 for an island in the game's virtual world last year, and has already made his money back by selling hunting and mining rights to other players. Trade in virtual items is now worth more than $100m each year. In some Asian countries, where MMORPGs are particularly popular, in-game thefts and cheats have led to real-world arrests and legal action. In one case in South Korea, the police intervened when a hoard of in-game money was stolen and sold, netting the thieves $1.3m. In-game money is, in short, no less real than the dollars and pounds stored in conventional bank accounts.

--"Worlds Without End," The Economist, December 14, 2005.