Closed or Open Economic Model?

The first question you should really ask is whether your virtual world needs an economy at all. They don’t have to have one. If, for example, characters can take nothing with them between playing sessions, not only is an economy unnecessary, but you can’t have one anyway. The more persistent a virtual world, the greater its need for a means to facilitate the efficient transfer of goods between players, but even then this doesn’t imply the worlds need a formal currency. That said, the real world has money and therefore virtual worlds that want to seem real will have money too.

There are two ways to run a virtual economy: The one that designers want to have, and the one they end up having. The former is the closed economy; the latter is the open economy.

A closed model is internally consistent, with inbuilt defenses against abuse. It’s a cycle. Resources are taken from the virtual world at the rate they are returned to it. There is a set ¹ amount of money and a set amount in circulation, although the goods that can be bought with it may increase or decrease in number (that is, the economy can grow/shrink). On the whole, cash retains its value.

An open model is not internally consistent. It’s faucet/drain. Resources enter the system and resources leave the system, but there is no prescribed relationship between the two. If the cash sinks aren’t big enough, then players can hoard money, which therefore decreases its value; if the cash sinks are too big, then players have to spend money, which therefore increases its value.

The closed model is desirable because, done properly, it delivers many benefits ². There is no inflation; market forces control the price of goods; it allows for economy-driven gameplay. On the other hand, it’s very hard to balance, highly sensitive to bugs, not accepted by players, and (most devastating of all) too easy to gouge. Players will attempt to break it, and will invariably succeed.

The open model could, in theory, be balanced. In practice, though, it’s much easier to give characters money than it is to take it from them; rampant inflation is the result. Virtual money rapidly becomes worthless, and players adopt a barter economy instead.

Designers therefore have three options:

• Create an unbreakable closed economy. No one has done it yet for large-scale virtual worlds, but that doesn’t mean it’s impossible. The global economy of the real world taken as a whole is closed.

• Create a managed open economy. Put in checks and balances that will regulate both the flow of the faucet and the outflow of the drain such that if the two aren’t reasonably close to equilibrium, then measures to correct it are taken. No one has managed this yet, either.

• Don’t have a formal currency. Players are going to end up bartering anyway, so throw in the towel and build for a barter economy from the beginning. Perhaps have a throwaway currency that newbies can use, but accept they’ll rapidly be measuring their wealth using floating-point numbers and will then switch to the formal barter economy.

We’ll discuss these particular ways of handling virtual world economies later in this chapter.

There are other ways to look at economies, of course. Some, such as gift exchange, are promising but as yet unproven; they may work as part of a more general economy, but don’t seem strong enough to work alone.

A perennial favorite is to integrate the virtual economy into the real one. This does have merit—it works for the textual world Achaea ³, for example—but there are limits. Few players will object to another player paying real-world money for an item to be given properties that have no gameplay value. For example, a rich player could pay several thousand dollars to have a customized sound played whenever they unsheathed their sword. Other players may find it amusing, tacky, or “unfair” (that is, they’re jealous that they can’t afford something similar). However, if the sword doesn’t do any extra damage or convey any tangible benefits it didn’t have anyway, that’s fine.

Intangibility is the domain of the real world; paying real money for something intangible is justifiable. Paying real money for a tangibly better sword is another matter entirely, though; virtual worlds hoping to use exactly this as their business model should pay very close attention to the likes of Achaea to see how to do it—it requires some very careful balancing and only attracts a certain breed of player. Designers intending to extend the model by letting players take real money out of the virtual economy (Project Entropia ⁴ is the trailblazer here) have considerable cause to worry—even if they do by some miracle manage to get their virtual economy to work.

The final point to make about a virtual world’s economy is that at an abstract level ecologies work the same way. If you have a closed economy and open ecology (or vice versa) you should ask yourself why one works in closed form and the other doesn’t.