The Economics of Self-Governance in Online Virtual Societies A Dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy at George Mason University by Robert S. Cavender Master of Arts George Mason University, 2012 Director: Richard E. Wagner, Professor Department of Economics Spring Semester 2015 George Mason University Fairfax, VA This work is licensed under a creative commons attribution-noderivs 3.0 unported license. ii Dedication This is dedicated to my loving wife, Colleen. iii Acknowledgements I would like to thank my many friends, family, and supporters who have helped make this happen. Special thanks to: my wife, Colleen, who was there for me every step of the way and without whom this would not have been possible; Dr. Wagner, who was always ready to discuss this topic with open ears and an open mind; and Drs. Leeson and Storr, who were ever patient and instructive throughout. Finally, thanks go out to Peter Boettke and my mentors and colleagues at the Mercatus Center not only for their financial support but also for their helpful comments, suggestions, critical reviews, and of course their friendship. iv Table of Contents Page List of Figures ................................................................................................................... vii Abstract ............................................................................................................................ viii Introduction ......................................................................................................................... 1 Chapter 1 ............................................................................................................................. 5 Section 1 .......................................................................................................................... 5 Section 2 .......................................................................................................................... 9 Subsection 1 ................................................................................................................. 9 Subsection 2 ............................................................................................................... 11 Section 3 ........................................................................................................................ 13 Subsection 1 ............................................................................................................... 13 Subsection 2 ............................................................................................................... 17 Section 4 ........................................................................................................................ 19 Subsection 1 ............................................................................................................... 19 Subsection 2 ............................................................................................................... 22 Subsection 3 ............................................................................................................... 24 Subsection 4 ............................................................................................................... 27 Subsection 5 ............................................................................................................... 28 Section 5 ........................................................................................................................ 30 Chapter 2 ........................................................................................................................... 33 Section 1 ........................................................................................................................ 33 Section 2 ........................................................................................................................ 36 Subsection 1 ............................................................................................................... 36 Subsection 2 ............................................................................................................... 37 Subsection 3 ............................................................................................................... 40 Section 3 ........................................................................................................................ 44 Subsection 1 ............................................................................................................... 44 v Subsection 2 ............................................................................................................... 46 Subsection 3 ............................................................................................................... 51 Subsection 4 ............................................................................................................... 53 Subsection 5 ............................................................................................................... 54 Section 4 ........................................................................................................................ 58 Chapter 3 ........................................................................................................................... 61 Section 1 ........................................................................................................................ 61 Section 2 ........................................................................................................................ 65 Section 3 ........................................................................................................................ 68 Subsection 1 ............................................................................................................... 68 Subsection 2 ............................................................................................................... 70 Subsection 3 ............................................................................................................... 71 Subsection 4 ............................................................................................................... 72 Subsection 5 ............................................................................................................... 72 Subsection 6 ............................................................................................................... 73 Section 4 ........................................................................................................................ 75 Subsection 1 ............................................................................................................... 75 Subsection 2 ............................................................................................................... 76 Subsection 3 ............................................................................................................... 81 Section 5 ........................................................................................................................ 86 Conclusion ........................................................................................................................ 88 Appendix ........................................................................................................................... 95 References ......................................................................................................................... 99 Biography ........................................................................................................................ 108 vi List of Figures Figure Page Figure 1 ............................................................................................................................. 16 Figure 2 ............................................................................................................................. 27 Figure 3 ............................................................................................................................. 95 Figure 4 ............................................................................................................................. 96 Figure 5 ............................................................................................................................. 97 Figure 6 ............................................................................................................................. 98 vii Abstract THE ECONOMICS OF SELF-GOVERNANCE IN ONLINE VIRTUAL SOCIETIES Robert S. Cavender, Ph.D. George Mason University, 2015 Dissertation Director: Dr. Richard E. Wagner Online games have exploded in popularity over the past twenty years alone, from just over 50,000 active participants by 1997 to over 22 million worldwide as of 2011. It is becoming more and more apparent that virtual reality worlds are not only here to stay, but provide for us the opportunity to explore a new empirical frontier in economic development. Given the notable absence in these environments of the usual sorts of government intervention prevalent in most advanced economies, this dissertation explores how individuals in online virtual societies go about establishing the institutions necessary for economic exchange. Introduction Aside from their potential merit as economic Petri dishes, it is becoming more and more evident that virtual reality worlds are to be the new frontier