In A World Where Everything Is Digital, Economics Gets Screwy Fast

from the no-surprise-there dept

I’ll have another post in my series of posts on economics without scarcity soon, but there’s something going on in Second Life that highlights one of the issues when there’s no scarcity. We were disappointed a few years ago when the creators of Second Life, Linden Labs, said that virtual goods in Second Life should be treated exactly as if they were real goods outside of the game. While it brought in all the problems with legal systems in the outside world, it also created a new problem involving a lack of scarcity and virtual goods. The problem with any such virtual good is that it isn’t really scarce. It’s artificially scarce by the design of the game. That’s a recipe for trouble, and it seems that said trouble has just introduced itself to Second Life in the form of an automated bot that will automatically copy anything in Second Life. Out in the real world, you’d never have an issue like this with tangible products — because there would always be a scarcity issue where creating a copy would at least entail a real marginal cost. Not so in the virtual world — which is upsetting people who were tricked into believing that Second Life really was like the outside world in terms of its economics. The fact that any item can be copied, suggests that the economies of these worlds are a lot less stable than what some folks would have you believe. In the meantime, people are trying to deal with it by bringing those bad real world laws directly into the virtual worlds, with some threatening to use the DMCA to stop the copybot from copying items in Second Life — a move foreshadowed by the claim of copyright infringement when someone copied a “magical sword” in a different online game. For all the hype virtual worlds like Second Life and their “virtual economies” have gotten, it’s worth remembering that the lack of real scarcity in these worlds is going to impact the economics in a big way.

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Comments on “In A World Where Everything Is Digital, Economics Gets Screwy Fast”

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Michael Long says:


So? It’s done in the “real” world too, from money to designer watches and handbags. Only here we call it counterfeiting.

And in both cases the value of the original item is diminished. More money (inflation) in the system means that my money is worth less. People buying fake items (knowingly or not) are not buying the real thing from the people who created them in the first place.

If these systems are supposed to model reality then they need to model scarcities as well. Creative, knowledgeable, well-trained people are scarce. Time is scarce. Money and many other resources and commodities are scarce.

But it seems that both physical and virtual reality need to balance and control the impact of the digital realm.

Lewis Salem says:

Ahhh the DMCA.

Ahhh the DMCA, the steaming pile of legislature rears its head in another arena. Trying to sue users of virtual counterfit goods inside the game is akin to roughing up a fake Gucci street vendor in Hong Kong. They must find a way to constantly update and add value. The levee has cracked, you can only hope to contain the flood waters.

Scate says:

“The problem with any such virtual good is that it isn’t really scarce. …. Out in the real world, you’d never have an issue like this with tangible products — because there would always be a scarcity issue where creating a copy would at least entail a real marginal cost”

Yes, there is at least a marginal cost. But scarcity in the real world is artificial, too. Why are $100 bills scarce? They are not expensive to produce but the scariness is entirely artificial.

As far as counterfeiting goes, it brings up the issue of why two identical products are supposed to be worth different amounts (In this case, I’m using a digital counterfeit as an example, being a perfect copy)? In the diamond business, diamonds are supposed to be scarce but that scarcity is artificially enhanced by the diamond cartel. On top of that, mined diamonds are supposed to be tremendously more valuable than their chemically identical lab grown dopplegangers–yet both look the same and perform exactly the same in all tests except for ultra specialized luminescence tests. The wobbly relation between these two kinds of diamonds shows that economics is in part a collective fantasy where things have value because enough people think they have value.

TAD (user link) says:

Non-copyable talent is scarce

I think a lot of people in Second Life already understand the lesson that Copybot puts in the spotlight. Easily copyable content has very little value. Therefore a lot of people have jobs in Second Life which are not copyable. Primarily these involve offering experiences.

People own dance clubs, work as escorts (prostitutes), own clubs which put on live musical performances, offer interior decorating services, and all sorts of other things that you can’t just copy. I write for a SL focused news service.

Until we have copybot technology which can duplicate the behaviors of people, those of us who offer experiences and non-tangible services don’t really have much to worry about.

As far as I know, the CopyBot tech can not copy the scripts inside of objects. So, while you may be able to make a copy of store vendor, it won’t do anything but _look_ like my store vendor.

Copybot is ultimately a good thing for Second Life. It forces residents to focus on things which are not easily copyable and it will also create alliances of store owners who will create ways of distinguishing between “honest” customers and those who “steal” their creations.

Even if the economy based around clothing and hair and other trinkets were to be destroyed, new and innovative designs will still pour into the world. There are already thousands and thousands of relatively high quality free goods available to everyone.

Dino (user link) says:

Look harder, I see scarcity

While it brought in all the problems with legal systems in the outside world, it also created a new problem involving a lack of scarcity and virtual goods. The problem with any such virtual good is that it isn’t really scarce. It’s artificially scarce by the design of the game.

Is there really a lack of scarcity in this environment? It costs the servers something to construct and maintain these objects. I wonder if Linden should have an economic system based on server resources.

Perhaps they should also have rules about machinery like the CopyBot. Something from Charles Stross’ novel Accelerando comes to mind:

“Some activities unfamiliar to you are highly illegal and should be scrupulously avoided. These include: possession of nuclear weapons, possession of unlimited autonomous replicators [see: gray goo], …”

dorpus says:

The Screwy Economics of Dirty Keyboards

As you may know, computer keyboards are a lot dirtier than toilet seats. What if I said that diarrhoea kills more people worldwide than AIDS? AIDS receives a lot of publicity and support, with all the red rubber bracelets, car antenna ribbons, charity rock concerts, what have you. AIDS supports a lucrative industry of do-gooders who profit from this one-sided information.

Should we have brown rubber bracelets, shit-throwing rock concerts, giant billboard posters of shit-covered African children? Should ACT UP have shit-ins at public water fountains, celebrities dancing naked on top of toilet bowls? Should college students dye their tongues black with pepto-bismol to show support, or wrap their mouths with toilet paper to protest “silence=death”?

ohreally says:

Dorpus, who cares if IT nerds die?

Just joking. Sounds like Second Life is running into the same problem as the plot in The Matrix. The first “world” was perfect, but the humans rejected it. So then the machines had to create a world with problems to be able to control the humans.

That being said, if things are easily copied, then they lose attraction. Look what happens in fashions, if Target starts selling a copy of something, you think it will stay hot on Madison Avenue? If everyone can have everything they want, well, that just goes against human nature. If nothing has value, what is the point of producing it. Sure, you will have pockets of people that create music, art, software etc, but the fact is, if someone doesn’t see the value of creation, they will go off and do something else.

Chief Elf (profile) says:

That scwewy wabbit!

Nice teaser of a headline, Mike. But to make it clear to everyone else, the principles of economics aren’t screwy in the virtual world… they’re exactly the same as in the real world. Misunderstanding of the principles of economics in the virtual world, however, is very screwy. But then, that’s the same in the real world too!

BTW, Lewis, “steaming pile of legislature” is a gem. Thanks for the laugh.

Anonymous Coward says:

Re: That scwewy wabbit!

You’re either trying to be funny, or an idiot.

Either way…

To make it clear to everyone. Read the post, and it will be clear that purely digital economies dont behave in even the SLIGHTEST way similiar to physical economies. No matter how many “don’t copy” bits you try to set, there is no tangible, there is only content, and it is 100% reproducible at zero cost. The only thing that can be done to simulate an economy is try and make it artificially difficult to copy.

Yerrika Gray - Ivory Manor Dancer says:

I play a fair amount of SL. The in-game club I work at had an anticopy script installed within 12 hours of this story breaking. Something tells me this will rapidly become a non-issue for most businesses.

The only real commodity in the game is beauty, and that’s truly in the eye of the beholder. People buy things because they’re pretty, or make themselves look better in one way or another. Why do you think there’s so much beachfront property and so many people selling clothes? The only real ways to earn money in the game are to sell pretty things, or be pretty and sell yourself. That’s why I dance.

Yes you can go into business, but most of the profitable businesses are based on one of those aspects of game life. Alll the clubs I’ve seen have stripper poles, and the owners spend ages making things look prettier than the next club so they can attract people.

Honestly, if counterfeiting becomes rampant in the game, I think that what will ensue is the way that the music market works now. Many people will be willing to pay a fair price for a good product just like they do now, and people will be unwilling to pay super-high premiums for things or to pay for junk. There will always be people looking to cheat any system, and they will take some advantage. Rampant counterfeiting might bite into the profit margins of some people, especially those who operate currently as middlemen. But, for the most part, I think producers that continually put out worthwhile things will continue to profit.

– Y.G.

maitrae says:


I dunno but i find copybot helpfull in keeping what i purchased from LL and even if i do what the consider wrong or whatever i should still be able to keep what i have purchased so i use differnt viewers that allow me to copy what ive purchased one of the best viewers because its fast is poplife right now and i think everyone should give it a try you can find out more about poplife at

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