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A cost‐benefit analysis of real‐money trade in the products of synthetic economies

Edward Castronova (Associate Professor in the Department of Telecommunications, Indiana University, Bloomington, Indiana, USA)


ISSN: 1463-6697

Article publication date: 1 November 2006




Macro goals: To alert the telecommunications policy community to the emergence of persistent online worlds as a communications and policy issue. Also to provide game industry decisionmakers with solid economic research on which to base policy decisions. Third, to connect these two communities to each other, for mutual benefit. Micro goals: to conduct a solid cost‐benefit analysis of a knotty problem in game economics: what to do about people who break the rules and use real money to buy game items (swords, wands, gold pieces, etc.)


Traditional cost‐benefit analysis. Consumer surplus analysis of externality effects, with a parameterized estimate of effects sizes.


Real‐money trading acts as a negative externality on the game subscription market. Seems likely to amount to several million dollars per 100,000 users per year.

Research limitations/implications

The effects sizes are simulated only. More data from the game industry are needed before one can put a solid dollar estimate on them. Also, much of the material in the paper had to be really elementary in order for the results to make sense for both policy economists and game industry analysts.

Practical implications

The analysis indicates a prima facie case for public policy intervention to help shield synthetic worlds from the deleterious effects of the global gold farming industry.


Interest in real‐money trade in gaming is growing, as indicated by the extent of online discussion by gaming scholars. Despite this, the literature on the economic and policy issues raised by the topic is limited. The article is an original piece of work that takes understanding forward.



Castronova, E. (2006), "A cost‐benefit analysis of real‐money trade in the products of synthetic economies", info, Vol. 8 No. 6, pp. 51-68.



Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

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