Tag Archives: economics

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Virtual economies, virtual reputations and virtual business suits

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Metaverse office space?Once the hype over Second Life died out, virtual worlds kinda disappeared from the high-profile headlines. But there’s still plenty of stuff going on in the metaverse, not least its use as a test-bed for theories to apply in reality. [image by Ramona.Forcella]

Economics is a popular choice; we’ve reported before on the bank runs and currency collapses of EVE Online, and now Edward Castronova – author of Synthetic Worlds, which should be your first port of call if you’re even vaguely interested in metaverse economics – is leading a team who’re examining the economy of EverQuest II. [via SlashDot]

Researcher Edward Castronova, professor of telecommunications at Indiana University, said researchers can learn almost anything about human society in games as they really are human societies.

However unlike real society they can be observed and tweaked.

“We can do controlled experiments in virtual worlds, but we can’t do that in reality,” said Castronova.

“Controlled experimentation is the very best way to learn about cause and effect. We are on the verge of developing that capacity for human society as a whole.”

[…]

After studying 314 million transactions within the fantasy world of Norrath in “EverQuest II,” including trading in-game goods like armor, shields, leather, herbs and food, the researchers were able to calculate the GDP of one of the game servers (the back-end computer that hosts thousands of players in one world).

As more people opened accounts and flocked to Norrath, spending money on new items, researchers saw inflation spike more than 50 percent in five months.

Game economies are, much like real economies, predicated on more than just a currency. Reputation scores are a big part of game economies (and many social networks, too), but the problem with “karma” systems is that they’re usually implemented in a way that renders them pointless, and which leads to the formation of in-game “mafias” [via BoingBoing]:

There can be no negative public karma-at least for establishing the trustworthiness of active users. A bad enough public score will simply lead to that user’s abandoning the account and starting a new one, a process we call karma bankruptcy. This setup defeats the primary goal of karma-to publicly identify bad actors. Assuming that a karma starts at zero for a brand-new user that an application has no information about, it can never go below zero, since karma bankruptcy resets it. Just look at the record of eBay sellers with more than three red stars-you’ll see that most haven’t sold anything in months or years, either because the sellers quit or they’re now doing business under different account names.

A different (though related) kind of reputation will be bothering the business crowd, however, and the Gartner firm of analysts is convinced that in less than five years, 70% of businesses will have issued avatar dress-codes to their employees [via SlashDot]:

“As the use of virtual environments for business purposes grows, enterprises need to understand how employees are using avatars in ways that might affect the enterprise or the enterprise’s reputation,” said James Lundy, managing vice president at Gartner, in a statement.

“We advise establishing codes of behavior that apply in any circumstance when an employee is acting as a company representative, whether in a real or virtual environment.”

This puts me in mind of a recurring motif in William Gibson’s novels, where he repeatedly makes the point that the most powerful and resource-rich virtual environments will be the ones that look subtle and understated, while the low-budget hucksters will dress to impress with excessive bling and extravagant eye-candy. The subtle grunge and mundane decay of reality is harder to simulate than grandiose overstatement; as in real life, it’ll be wise to tread lightly around the ostentatious.

Not interested in playing games or doing business in the metaverse? Well, you could always go learn to speak a dying language.

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Changing the world with Charter Cities

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Melbourne, Australia by nightMany thanks to former Futurismic staffer and all-round top bloke Tobias Buckell for flagging up an interview with Paul Romer at the NYT Freakonomics blog, which pushed a whole bunch of my buttons at once. [image by geoftheref]

Romer’s big idea is that of the Charter City: a developing nation strikes a deal with one or more developed nations, providing a plot of land in exchange for the institutional stability of its partner or partners. A city-state is declared and built, policed and regulated by the foreign nation but populated by citizens of the developing nation who want to take a shot at a better life. Foreign investment pours in, as does population; the resulting nexus of stability acts as beacon and white blood cell to the rest of the developing nation, and to others much like it. Romer explains in more detail on his website:

Today’s world offers little chance for large-scale migration. The hundreds of millions of people who want to move to places with better rules aren’t allowed in. Charter cities will become the places where they can go.

Cities are the right scale for implementing entirely new rules. A coherent set of rules can let millions of people work together and create enormous value on a small tract of land. Because cities are also relatively self-contained, the internal rules in one can differ from the rules in all of its trading partners.

Urbanization is the key to the predictable transformation from an economy where most people earn a precarious living in subsistence agriculture (doing great harm to the environment in the process) to one in which most people work in manufacturing and services. The transformation is inevitable; current estimates suggest that an additional 3 billion people will move to cities this century.

The quality of their lives will depend on whether these are well-run cities with good rules, or dysfunctional cities with bad rules. Many people continue to move into urban slums with no running water, high crime rates, few steady jobs, and sewage in the streets. The embedded, interlocking systems of bad rules that lead to this type of dysfunction will be exceedingly difficult for existing cities to change from within.

A new charter city offers a speedier path to better rules. People who live there, even people who start out earning very little, can live in housing that is safe and sanitary, send their children to school, find work, and live free from fear of crime.

Now, this is a fascinating idea – the sort of thing that sets off little cascades of story ideas in my mind (which, based on past form, I’ll never get round to doing anything with until reality has rendered them redundant). I’ll say outright that I can see a lot of flaws in it (not least of which is the alarmingly totalitarian undercurrent implicit in the idea of a city into which many may legally arrive but few may leave – Berlin Wall, anyone?), but there’s a core of logic in there that rings true. The interview with Romer addresses some of the more obvious criticisms, and is well worth a read:

Freakonomics: Why will governments, particularly the entrenched, corrupt governments found in many countries, be willing to cede control of these zones?

Romer: First let me push back on an assumption that many people make and that seems to be implicit in your question. This assumption is that “bad guys” are why so many people are stuck living under bad rules. If you were a good guy and were the mayor of New York, would you be able to build enough consensus to implement congestion pricing for traffic, at least within our lifetimes? Or would you be strong enough to be able to coerce the people who don’t want it to go along?

Narratives about good guys and bad guys are always entertaining, but there is a deeper reason why people get stuck under bad rules. For those of us who live in the United States, it is easier to understand in a context like New York that is more familiar. It is quite possible that its existing political system will never allow an improvement like congestion pricing, and yet many people would happily move to a new city that had sensible pricing and smoothly flowing traffic at all hours of the day. Systems of rules are “sticky”; they are difficult for any leader or group to change.

Most of the “designed nations” that I can think of came to sticky ends or fizzled out early, but they tended to be more obviously (and naively) utopian in concept than Romer’s ideas, which seem to be a form of free-market capitalism tempered by a bit of common sense about human failings and the frailty of political and economic systems. Would charter cities work as Romer suggests, and help developing nations climb out of the poverty pit? I have no idea… and I guess the only way we’ll find out is if someone lets him build one.

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The socioeconomics of human longevity

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generationsAlmost as if they timed it to coincide with the just-finished Singularity Summit, a group of medical researchers published a paper last week in the prestigious journal The Lancet which shows that life expectancy in Western nations is increasing steadily, alongside quality of life in those later years. The trend shows no signs of levelling off any time soon, leading other ageing experts to hypothesise that there may be no intrinsic cap on the human lifespan. [via NextBigFuture; image by technowannabe]

The Guardian picked up the same press release and ran with it, providing us with the increasingly common spectacle of regular journalists and scientists engaging in science fictional speculation:

Life expectancy is increasing so fast that half the babies born in 2007 will live to be at least 103, while half the Japanese babies born in the same year will reach the age of 107.

The bad news is that the ageing populations of rich countries such as the UK threaten to unbalance the population. It “poses severe challenges for the traditional social welfare state,” write Christensen and colleagues.

But they have a radical solution: young and old should work fewer hours a week. Over a lifetime, we would all spend the same total amount of time at work as we do now, but spread out over the years.

“The 20th century was a century of redistribution of income. The 21st century could be a century of redistribution of work,” they write. “Redistribution would spread work more evenly across populations and over the ages of life. Individuals could combine work, education, leisure and child rearing in varying amounts at different ages.”

It is a theory that is beginning to receive “some preliminary attention”, the authors say, citing a study in the Science journal three years ago which suggested that shorter working weeks would help young people and increase western Europe’s flagging birth rate.

Shorter working weeks might further increase health and life expectancy, Christensen and colleagues write. But redistribution of work will not solve all the problems caused by a society with a large number of very old people. Beyond a certain point, the old will need younger people to look after them – although technology is likely to provide some help in advanced countries such as the UK.

The four-day week idea has been growing in strength ever since the markets nosedived about a year ago, and experiments indicate that it has lots of beneficial effects for both workers and their employers.

But once again we’re back to the issue of greying populations and sustainable reproductive rates, which looks like its going to be the meme of the season… thanks in no small part to the US healthcare debate, which – if you ignore the hot-air rhetoric and obfuscation on all sides – is largely about finding a fair way for the increasing number of elderly citizens to be supported by a diminishing number of younger workers. We’ve got no cause to feel smug on this side of the pond, either; free healthcare may be commonplace in Europe already, but it’s going to be just as stretched by demographic shifts as it will be in the States.

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Ebooks cost a lot of money to make; will no one explain why that has to be so?

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Andrew Wheeler wants people to stop saying that ebooks don’t cost publishers lots of money to make:

Creating an individual ebook format — one of the current suite of them — costs roughly as much as creating a print-on-paper edition; the costs of the actual paper and ink are vanishingly small in this equation. Some ebook formats, such as the currently fashionable one, have a baroque process of creation that involves multiple transformations and iterations of quality control, which drives up costs further. And the cost per unit is massively higher for ebooks than for printed books — infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, I feel the need to respond to this post, because I’ve chimed in on ebook economics before and it’s a topic I care a lot about. However, I’m going to first point out that I have a great deal of respect for Andrew Wheeler, both as a blogger and an editor, and I’m fully aware that he knows a lot more about the inner workings of the publishing industry than I do; I’m not going to tell him he’s wrong, because he isn’t. I’m not going to refute the claim that ebooks currently cost a lot of money to make. I am, however, going to say that they shouldn’t cost a lot of money to make, that they don’t have to, and that the longer they do, the smaller the chances of them ever becoming a viable industry in their own right.

Part of this isn’t the fault of the publishers; as Wheeler points out, there are a dozen competing ebook formats with arcane creation processes; there are DRM frameworks; there are ebook vendor requirements that predicatably take advantage of the over-the-barrel status of the publisher and milk them for as much as they think they can get away with. This is pretty much how new technologies always work; I can see parallels with the digital music business as it meared the Napster era. The publishers dragged their feet then, as well, and in the process allowed an openly accessible file format (the mp3) to gain ascendancy in a series of distribution networks that they had no investment in or control over. I expect book publishers are well aware of this parallel; what surprises me is that they’re not talking to the consumers about it more actively.

I do need to quibble on one of Wheeler’s points:

… the cost per unit is massively higher for ebooks than for printed books — infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, again, I’m not saying he’s wrong here – he’s seen figures and spreadsheets that I’ll never be shown, of that I’m certain. But if you’re running a set-up where the per-unit cost of an infinite good is higher than that of the physical finite version, either there’s something massively wrong somewhere in the production chain, or my understanding of the publishing process has a huge flaw which I would sorely appreciate being corrected on.

Allow me to explain: some of you may be aware that I work for UK small press PS Publishing. Now, we don’t sell ebooks (yet), but we make PDF versions of our books available to reviewers. Those PDFs are almost identical to the file we send to the printers, except for being saved at a lower resolution to save on disk space and download times. In other words, the work to produce a template for the reproduction of a physical book or an electronic one can be exactly the same; the same editing, proofing and typesetting/layout process, all the way up to the stage where the book is released to duplication.

The obvious answer to that statement is “well, you’re using PDFs and no other formats, so of course it’s easy”. Well, yes; and that’s kinda my point – if the publishing industry continues to allow intermediary vendors to shaft them with ludicrous hoop-jump requirments and costs for multiple proprietary formats, then they’re never going to make a dime out of selling ebooks. There needs to be a concerted push by the industry for a single, simple and secure digital format that everyone uses; then leverage can be applied to the makers of reader hardware to support that format, plus the formats used by public domain material (e.g. the humble and ubiquitous PDF, which is either unsupported or charged for on most current readers of which I am aware).

Part of the establishment of that file format should include software for easy conversion of proofed electronic galley files directly into it, so that once a book is ready for printing, it’s also ready for ebooking in one click. At this point, there’s no way the per-unit cost for ebooks can be higher than print, because that ebook is ready to ship, and any intermediary vendors should be willing to eat the storage and distribution costs out of their final to-consumer price. If they’re not, you go with the one who will; the rest will soon follow. Now, sure, you’ve still got your marketing and promotion budget to consider in to that per-unit cost, but that’s the same outlay for both editions up to this point in the process, and with a digital format that cost is spread over a theoretically infinite number of units at no extra cost.

By comparison, after that final file is deemed ready for production, printed books must be printed, warehoused, shipped, lifted onto shelves in brick-and-mortar stores and run past the till scanners there, too… and all that money has to be coming from the profit margins. By any rational analysis from outside (with the caveat that I’m not an economist or an accountant), that must cost more than making digital books available; I’m prepared to believe that there may be reasons that it doesn’t, but I’d suggest that those mysterious reasons point to a heroic flaw in the economics of book publishing as it stands.

To reiterate: I’m not saying Andrew Wheeler is wrong to say that ebooks cost more to make than dead-tree books; I’m saying that disparity in cost is impossible to understand for anyone not privy to the way the system works – people like me, and people like the ones who want to buy ebooks but find them either unavailable due to antiquated regional licencsing, hobbled or useless thanks to proprietary and restrictive file formats, or just simply too damned expensive by comparison to the dead-tree version.

Wheeler’s final point s that many ebooks never sell a single copy, which surely only underlines my point that making every effort to reduce that inexplicably high per-unit cost is the only way to make them a viable business. As Blue Tyson says in the comments below the post, “[p]ricing them double is a pretty good strategy to sell zero, certainly.” If your current system means you have no choice but to charge an arm and a leg for an infinte good, your system is surely broken. I think part of the problem is considering the physical and electronic versions as two separate products; that proofed and typeset file is the product, and the ebook or bound paper are just the delivery systems for it.

Now, I’m fully prepared to admit that there are things I don’t know about how the system works, as mentioned above. The point I’m trying to make here is that until the consumer has been shown why that price must be so high, they will never stop complaining about it. I’d genuinely like to know the truth of the matter, and as such I’d like to invite Andrew Wheeler (and anyone else with the pertinent experience and knowledge) to set us straight; I’ll happily publish a response here, or link to it if published elsewhere. Sunlight is the best disinfectant, so they say. 🙂

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Amanda Palmer on passing the hat for art

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guitarist buskerI imagine many of you have seen this elsewhere (judging by the dozens of different sources I saw it bounce through yesterday) but if not, here’s the one and only Amanda Palmer explaining why she’s not ashamed to ask her fans for money:

artists need to make money to eat and to continue to make art.

artists used to rely on middlemen to collect their money on their behalf, thereby rendering themselves innocent of cash-handling in the public eye.

artists will now be coming straight to you (yes YOU, you who want their music, their films, their books) for their paychecks.
please welcome them. please help them. please do not make them feel badly about asking you directly for money.
dead serious: this is the way shit is going to work from now on and it will work best if we all embrace it and don’t fight it.

unless you’ve been living under a rock, you’ve surely noticed that artists ALL over the place are reaching out directly to their fans for money.
how you do it is a different matter.
maybe i should be more tasteful.
maybe i should not stop my concerts and auction off art.
i do not claim to have figured out the perfect system, not by a long shot.

BUT … i’d rather get the system right gradually and learn from the mistakes and break new ground (with the help of an incredibly responsive and positive fanbase) for other artists who i assume are going to cautiously follow in our footsteps. we are creating the protocol, people, right here and now.

i don’t care if we fuck up. i care THAT we’re doing it.

It’s worthwhile reading for anyone who writes with the intent to sell their work, or those who publish at the small scale of webzines or print mags (or iPhone apps, or whatever other way you’ve decided to do it). As has been suggested before, dead-tree publishing is going to take a comparatively long time to catch up with the business models of the music industry, because the pressures of piracy and freely-available content aren’t so strong yet. But they will be… and it’ll happen sooner than you expect, especially if you just sit on your hands waiting for someone to give you the answer.

So be bold, try things. Throw the spaghetti at the wall and see if it sticks. Hal Duncan’s got the right idea – he’s doing a direct-to-audience publishing experiment on his blog right now. So go throw a few bucks in his hat, and know that you’ve bought good art… and helped feed the person who made it. [image by Martin Pettitt]

(Go throw Amanda Palmer a few coins, too; she’s not just a fine musician but a crusader for independent art, and that alone deserves your support.)