The many uses of Second Life

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Last year the World Bank's Doing Business team released its annual report in Second Life. For those of you without the appropriate level of nerd credentials, Second Life is an online virtual community that allows users to create avatars and interact in constructed virtual worlds. Doing Business took advantage of this platform to reach some 700 "residents" of Second Life and another 1,000 audio listeners. (The DB team's Dahlia Khalifa sums up the event nicely in a post on the Doing Business Blog. Also see below for a video of the event.) As it turns out, the Second Life event continues to generate interest, and DFID's quarterly journal Developments dedicated a story to the role of online communities in promoting development. According to one non-profit cited in Developments:

...Second Life offers an unprecedented opportunity for global meetings which are not just interactive and participatory, but which are also carbon neutral. And the UN is watching closely to see if...Second Life provides a domain where non-profits and NGOs might promote campaigns and share ideas as never before.

Developments also quotes Dahlia Khalifa on the benefits of Second Life:

I think Second Life today offers a great chance to reach out globally, like we never have before.

So Second Life offers two potentially important benefits to the development community - reducing the carbon footprint of conferences and increasing the global reach of initiatives like the Doing Business report. Developments speculates about a third possible benefit. Second Life is also home to a virtual economy in which avatars truck and barter in Linden dollars - a virtual currency. But these virtual dollars can be cashed in for real dollars, and apparently one enterprising individual, a German user named Ailin Graef, managed to rake in a million US dollars. Perhaps Second Life could offer citizens of developing countries opportunities to earn a real living through their online activities - contingent, of course, on having access to sufficient bandwidth.

I'd like to suggest a fourth - and perhaps even more important - opportunity represented by virtual worlds like Second Life. One of the questions that Dahlia Kahlifa received during the Second Life event really struck me:

One of the most interesting questions I got from the audience was whether or not Doing Business benchmarking methodology could be applied to the economy of Second Life. I had to think about that one for a few seconds. My answer was that yes, in principle, it could. To the degree that economic activity in Second Life and across its various islands is regulated by laws and procedures, it might be possible to rank where it is easiest to do business.

One of the biggest problems faced by development economics is that it is virtually impossible to test out macroeconomic policy prescriptions. Sure, we can compare, for example, different reforms carried out in the transition countries to try to figure out what was the best way to privatize state-owned enterprises, but at the end of the day we can never be sure that one policy was better than another. Did the Czech Republic's economy do better than Bulgaria's because of its reforms or because of initial conditions? Would the reforms implemented in the Czech Republic have played out the same way as they did in Bulgaria? There's no real way to answer these question with finality - at least not in the same way as microeconomic questions, which are made somewhat more pliable through randomized evaluations.

Virtual worlds offer a very partial remedy to this problem. I could imagine certain macroeconomic policy prescriptions being tested out in virtual worlds to see what the end effect looks like. One of the real moneymakers in Second Life is real estate - virtual real estate commands real money. Perhaps a virtual world offers an opportunity to test out ways to deal with asset bubbles a la the subprime crisis. Two researchers have also looked at the outbreak of a disease in an online gaming world to try to understand how people react to an epidemic. As they put it, "appropriate exploitation of these gaming systems could greatly advance the capabilities of applied simulation modelling in infectious disease research." Perhaps even Doing Business reforms could be tested to see what kind of outcomes result from particular reforms.


As it turns out, there is already a website called Metanomics dedicated to the issues raised in this post. I should have known!

Video of the Second Life Doing Business Event:


Ryan Hahn

Operations Officer

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