Scarcity and Institutions in the Metaverse

In the best virtual reality movies, the audience often doesn’t know whether the action is taking place in the real world or in the imagination of the characters (who are in fact navigating in the memory of a computer). My favorite movies of the genre are Alejandro Amenábar’s Abre Los Ojos (the American remake is Vanilla Sky but the original is far better), Cypher by Vincenzo Natali (who also made the excellent film Cube), and eXistenZ by David Cronenberg (although it’s not as good as the other two).

Recently The Economist had an article on Second Life, a website designed by Linden Lab. Second Life is a virtual online world where users design characters (called “avatars”), buy land, build houses, trade, and live vicariously through their avatars and in a way only limited by their imaginations (well, almost). I am sure many of you know about it. True, it is not quite like in virtual reality movies where the computer is directly plugged in the brain, but it’s a good step in that direction.

What attracted my attention in the article is the existence of institutions, and especially property rights, in this “metaverse” (that’s the way virtual worlds are called). Linden Lab is in fact a virtual property company. Users can lease “land” from the company and add things to it (e.g., build a house). They can then trade the property against other properties. Leasing is the way Linden Lab makes money (real US$).

The other reason for leasing, I believe, is that it was the only way to design a social order within the metaverse. Indeed, one wonders why there is any scarcity in a virtual world. Linden Lab’s founder mentions that his company can increase the supply of land (and pretty much everything else) as they desire. But in the short term, they don’t: they lease the land. I suspect that in the absence of scarcity in the metaverse, there would be not much fun being there. It takes time to build a house, to establish a brand, and to do all the things we do in the real world. This is all due to scarcity and it must be reflected in the virtual world. In other words, absent scarcity and institutions, even virtual reality would be boring and the regularities of the market system would be missing.

Second Life seems to be the perfect libertarian world, where everyone enjoys the freedom to live and create as long as the liberty of others to do the same is respected. Perhaps some experiment could be conducted within this metaverse to look at the effects of institutions and policy. It sounds like a topic that GMU PhD students in economics should look at.

Comments

[Daniel J. D'Amico]

Check out Snow Crash, the main character is a wealthy property owner in the cyber reality but a pizza delivery man in reality.

One interesting difference between the cyber and the real world would be that there can be no losses associated with personal violence in the cyber world. You can damage someone's property but not kill, rape, or beat them. Physical property violations like theft and vandalism have an easier settlement possibility grounded in restitution than does physically harming another human being. Mostly because the sentencing sollution is grounded in a value more easily communicated to all potential third parties. Despite the personal relationship you might have with your car, everyone has a pretty good idea as to what the market price of a car is and how costly it would be to get you another one in the case that someone damaged or stole yours. WE don't have markets in people, so the costs of loosing a loved one to murder or experiencing rape are less recognizable and subject to more variance i n outcomes.

In reality, the legal history dealing with murder and other non-recompensable crimes have fueled legitimacy arguments for deterance to be included as a principle of justice. The argument goes soemthing like: "there are some things can never be made right, so institutions must prevent them from happening in the first place." I think this line of reasoning is an impatience and ends up disrupting otherwise responsive institutions.

Well those heinous actions wouldn't exist in the cyber world would they? so I don't think deterrence would have a place in any institutionalized cyber legal system.

PS you guys should add a search bar to your blog...