Money supply and inflation in virtual economies : creating the appropriate tools for virtual economic management in collaboration with NARC Ltd.

Abstract

Virtual worlds represent economies that are based on scarce digital resources. Some of the largest and most complex virtual worlds that we interact with are a part of the genre of massively multiplayer online video games (MMO). Several MMO game developers have had to tackle with the issue of inflation brought about by an expanding supply of their in-game currency. NARC Ltd. is a game development studio that wishes to prepare for this eventuality by creating useful and effective tools for the management of price levels. This formed the basis of our research question: For the purposes of developing a massively multiplayer online video game, what are the appropriate tools for measuring, managing and maintaining a digital in-game economy, in particular regarding money supply and inflation? Our analysis identified models that allow for the measurement of total output, velocity of money, virtual consumer price indices, virtual production functions and real money trading arbitrage.