Specific Economic Proposals

[FireFrenzy]

If we exclude infinite goods and people want to use it, they'll just put in ridiculously large numbers. If we put them in and people don't want to use it, they won't.

Ah, no, I agree. I should have been more precise: there should be exclusion of the amounts shown of indefinite goods in any preliminary implementation.

And, regarding your banking system: this is precisely like what I'd like to see. However, there is a significant divergence where a choice need be made: are loans derived from the actual deposits (as in real-life), or are they the creation of fresh money. This choice has large consequences:

If, just as in real-life, loans were the same "physical" money as actual deposits, then banking would also have a great potential to increase money circulation via the "money multiplier" effect. However, with such a system, the total available for loans should be less than its balance; if all of the money was loaned away, the bank couldn't fulfill a request for a given member to withdrawn his or her money, as the bank wouldn't actual have it -- it would be loaned away. The difficulty with this, obviously, is the end of a given set: All members would likely wish to withdraw their money. Unfortunately, this would be quite impossible, as the amount of actual money would be far less than that seemingly held by each country. This system can only work if a certain proportion of countries maintain deposits at any given time (or if there are no loans, which detract from the logic of the whole system).

The alternative, of course, is that the money deposited and the money loaned are completely separate: in basic, if the bank loaned 100% of its holdings, then the money would have essentially doubled; the bank would still retain 100% of the deposits, in addition to creating that amount in loans from thin air. Thus, there is also a virtually (literally and figuratively) unlimited money multiplier, with any given country being able to withdraw its money at any given time, guaranteed. I'm not completely sure of all this system's ramifications, but this would seem the more sensible approach for the present state of the game. If the game was altered so that one didn't need to spend his or her money at the end of the set (i.e., money was more valuable than military, food, energy, etc.), then the prior could work -- which is obviously the more true-to-life scenario.

Regarding Death's comment on the income derived from banks: I quite agree. I think that the value of interest on any savings should be quite low (as in real-life ), with interest rates for loans that are obviously higher. However, what of the proceeds of this (the summation of the difference between loans' and savings' interest rates, multiplied by the number of loans issued)? Should they go to the bank creator, be spread as a sort of "dividend" between members of the bank (my vote), added to the lottery/raffle, or, of course, vanished into thin air, from whence they came)? Of course, unless banks were given sort of "budgets," where profits were used to pay the interest rate on savings, savings' interest rates would still come out of thin air.

[The Beatles]

Banks don't magically produce income. The point is rather that some people will naturally be "bankers" as some will be "traders". The bankers will accumulate wealth but will not be able to use it directly, but they will be able to finance wars, by, for instance, inviting certain members and giving private loans to them to fund wars.

By the way: banks can also decrease the reputation of people who default on payments. This brings up the reminder that all buyer/seller/banker/customer feedback ought to be public. Who rated who, etc.

Another few thoughts: clans, markets and banks should be able to invite customers not by simply sending a password, but by sending an invitation that the player can accept. This is more secure and more realistic. And customers ought to be able to make loan applications that are greater than the standard loan caps (which could be absolute, or based on a networth multiplier, as I wrote a few posts back), which the bankers can then approve or deny on a case-by-case basis, while keeping the transaction within the banking framework.

Of course, equally there should be no force compelling players to pay up. But if a banker tires of a customer, he can ask an organization to confiscate equivalent property from the defaulter by war. This implies also that bankers ought to be able to cancel or write off loans: either because they've been taken by force, OR because it's a form of aid. After all, writing off debts is a hot topic in African politics, it's only logical it would be practised in the virtual world as well. And naturally, the customer is informed of such writing off, and it may even be public for public banks. I forgot to say earlier that the open banks (such as the global bank), like open markets, ought to be public.



[edit] This post, as written above, was written in reply to Death. Now reading FF's.

So in reply:

I feel certain that we ought to implement a system that is true to life and completely unfettered. Game-imposed obstacles are unnatural, because we designed them. They can completely upset the system. Now, in detail.

It would be up to an individual bank to decide how much they were prepared to loan out. The balance a bank would have would derive from the cash put into it, either from deposits, or from contributions by the owners (such as the initial capital, or bailing out a failing bank). Nothing would come out of thin air.

This does create a money multiplier problem, but astute players would simply avoid the banking system (except of the most reputable banks, for small amounts) in fixed-set games. Those that didn't avoid them would learn to avoid them in future, because they would lose on the transaction. Quite a lot of events might cause runs on the bank in such a volatile world, but that is something that individual banks will have to deal with, setting their own individual economic and political policies. There is no guarantee they will succeed, and a defaulting bank might well see hostile incursion on its owners by angry customers cheated out of their money. This is all quite realistic, but I don't think it would wholly discourage private banking.

Even the global bank would not be impervious to this effect, althought we might add some sensible heuristic safeguards (can only loan out x% percent of deposits, etc.)

Another thing to consider is networth. Cash in the bank could reasonably be altered to be included in the networth formula. The sum of one's deposits minus the some of one's loans. In addition, networth could be calculated based on daily published exchange rates for various goods. So if the average price of an acre of land on all markets (and I don't mean average over the markets, but average over all the acres sold on a given day) is, say, $500, then an acre would contribute $500 to player networths for the following day. Together, these might take away the incentive to create a run on the bank at the end of the set.

There are two options for the global bank. It could be structured such as to not make any profit at all, which is beneficial to loan-takers. Else it could be structured to provide a modest profit, which could go into the raffle. I'm undecided between these two. I should add that how we structure the global bank doesn't really matter from the perspective of reality, as long as it can't make money out of thin air. To your last post, yes, banks would need to have a budget; I thought I had implied it but I hadn't, so it's nice to bounce ideas around with other people.

[FireFrenzy]

clans, markets and banks should be able to invite customers not by simply sending a password, but by sending an invitation that the player can accept.

Agreed! This is excellent foresightfulness.

It would be up to an individual bank to decide how much they were prepared to loan out. The balance a bank would have would derive from the cash put into it, either from deposits, or from contributions by the owners (such as the initial capital, or bailing out a failing bank). Nothing would come out of thin air.

Also agreed, though it might be prudent to create an admin-configurable minimum, similar to the national reserve ratios, so as to minimize the risk of economic collapse. This information (the maximum amount the bank is prepared to loan out) should be viewable prior to entry of a bank; it would make sense to be displayed on the invitation, for consideration of whether to accept or deny, because it is obviously a statistic of risk (as you noted in the subsequent paragraph in your post).

Cash in the bank could reasonably be altered to be included in the networth formula. The sum of one's deposits minus the some of one's loans.

A simple and quite reasonable solution, indeed.

In addition, networth could be calculated based on daily published exchange rates for various goods. So if the average price of an acre of land on all markets (and I don't mean average over the markets, but average over all the acres sold on a given day) is, say, $500, then an acre would contribute $500 to player networths for the following day.

Yes, yes, yes! This is an extraordinary idea! This would indeed, I expect, solve the end-of-set problem. Additionally, this makes much more sense in regards to rankings: it's a far more reliable and true method of ranking countries, rather than the fairly arbitrary system at present. Networth would be dependent on the composition of the market, rather than the reverse.

EDIT: Even if every other idea on this thread is scrapped, I believe that this one should be implemented. Even with the current system, it makes far more sense. The only difficulty with the implementation of this idea in general that I foresee is market manipulation at the end of the set, to alter networths.

There are two options for the global market. It could be structured such as to not make any profit at all, which is beneficial to loan-takers. Else it could be structured to provide a modest profit, which could go into the raffle. I'm undecided between these two. I should add that how we structure the global market doesn't really matter from the perspective of reality, as long as it can't make money out of thin air.

Well, I think that one thing to consider is competition between banks. Obviously, with the said system, all banks would set savings' and loans' interest rates with a concern for profits -- except for the global bank. If the global bank had no profit-margin, then it would logically have the advantage of relatively low interest rates and high savings rates, with which the player-made banks could not compete. Therefore, I think that the global bank should, actually, have rather high loan rates and low savings rates, so to encourage player-made banks. However, to counter, one could also make the global bank one of low-risk, loaning out relatively less money. Of course, with too little loaning, there would be negative profits (assuming interest on savings); I'd expect, as with any open-market, that there would be a balance -- it would simply be a matter of finding it. As for profits: as long as they are dissipated in some manner -- via the raffle is quite logical -- I wouldn't think they're of great concern to the overall system.

[The Beatles]

The only problem I see with an enforced minimum is that, sensible though the policy is, it does prevent players from doing things within the system (even potentially harmful things), and just encourages them to step outside of the system. That's precisely what we want to avoid. In addition, from your article, many countries get by without enforced reserve ratios, and those economies (Australia, Canada, Sweden, UK) are some of the most prosperous in the world! Not to mention that the Swiss and Eurozone minima are so low as to be practically nonexistant. That is to say, I don't think that an economy is disadvantaged by a lack of an enforced minimum reserve ratio. Instead, I propose that a certain ratio is suggested, and a warning show up on bank owner pages if the ratio is exceeded, but nothing be done to actually prevent them from exceeding it. This "warning ratio", can, of course, be controlled by admins as they see fit.

(Note, I'm willing to go along with any idea contrary to mine if it has community support -- this is general in true -- so I am just outlining my ideas here, and not presenting them in any official capacity.)

As for the networth idea, I don't think it makes too much sense without the whole economy thing to go along with it. After all, how would one calculate the "market value" of a good, when it is freely available at a game-fixed price on the private market? The public market is little more than a toy as it currently stands. But with an economy, such a networth calculation becomes realistic.

For the manipulators, no idea what we would do yet, but we can hammer that out in a further version (unless someone comes up with an idea).

[The Beatles]

Apologies for double post, but this is an unrelated idea, and related to markets. The requirements of a perfect market include perfect competition, equal access, perfect information, rational self-interest of the buyers and sellers, homogenous commodity, no transaction fees. We don't need a perfect market, but we can satisfy many of the above criteria easily. For instance:
- goods, being virtual, are naturally homogeneous
- within a market, there is equal access to all goods
- again, in a virtual world, there is perfect information
- rational self-interest is only abandoned in favour of political considerations, but that's good!
- there are no transaction fees in the global market

To strive for perfect competition, though, I propose that in any market, goods are not merely sorted by lowest price, but there is a form to automatically buy X amount of goods at the lowest available price, moving on to the next highest price, etc., as various sellers are bought out. For instance, if I want to buy 100,000 pikemen, the market notices that the lowest-priced pikemen are at $200 per soldier, and there are 40,000 available. It buys these, then tries to buy a further $60,000. It goes on to the the next lowest-priced pikemen, which happen to be selling at $205, and continues in this fashion, until the market has been bought out or the order satisfied. The total and average prices are then displayed (but there is, of course, no option to back out). Of course, a conscious buyer might want to look at each particular good on sale, but most people, I wager, will just go for the cheapest deal.

This would help along fair competition without the hassle for most buyers. Looking to undercut market prices? Well, other sellers are displayed too (necessarily, because of perfect information), but you'll attract the average majority.

[FireFrenzy]

The only problem I see with an enforced minimum is that, sensible though the policy is, it does prevent players from doing things within the system (even potentially harmful things), and just encourages them to step outside of the system. That's precisely what we want to avoid.

This is true. However, this should be balanced by restrictions on deleterious natural tendencies (in my opinion, of course). That is, in such a system, likely, relatively few bankers will provide the monetary services for the majority of the players. The incentive for these bankers is, of course, to maximize profit. Likewise, there may be a situation where there is no alternative for those wishing to deposit savings than to take undue risk.

Of course, the counter is that this will produce incentive for a banker to reduce risk to stimulate investment in his or her bank. Or, of course, if the global market is low-risk, this will be a natural check on other banks, as investors could always deposit in the global bank if risk in all other banks are too high. Both these are valid rebuttals -- it simply depends on the implementation and the player tendencies. I tend to advocate free commerce with minimal "higher-authority" regulation of certain actions as safeguards. However, considering the near-perfect competition tendencies of virtual economics which you noted, and the uniquely level "playing field" therein, I'd be willing -- and certainly curious -- to see how unregulated markets would fair.

As for the networth idea, I don't think it makes too much sense without the whole economy thing to go along with it. After all, how would one calculate the "market value" of a good, when it is freely available at a game-fixed price on the private market? The public market is little more than a toy as it currently stands. But with an economy, such a networth calculation becomes realistic.

I can't disagree. However, I would consider giving food, runes, and military fluctuating values based on their public market prices more realistic than giving them set values, in any case.

Irregardless of those thoughts, there is one thing I have to note: I think it would be better (albeit, possibly more tedious) to readjust the market average after every transaction, rather than a set time daily. The simple reason: more resistant to manipulation. People would likely try (and be able to) place goods on markets just prior to the daily re-averaging in order to manipulate the average market price each day, and thusly, overall. Additionally, considering the entries that I expect you would need to add to the database, you could easily provide overall average prices, as well as total units transacted, of any particular good.

I suppose that's my idea towards this:

For the manipulators, no idea what we would do yet, but we can hammer that out in a further version (unless someone comes up with an idea).

Another idea towards perfect markets that I've been brewing around for quite some weeks: perhaps it'd be more logical to have a drop-down menu of all prices listed for a particular good, with listings of the corresponding amount, as well as the seller, rather than the current display of only the cheapest amount of a given good, ordered by duration. Example of my attempt:

[The Beatles]

That's true, a continuous update is more resistant to tampering. The only reason I used the 24-hour frame is because networths would fluctuate quite a bit otherwise. Not to mention, some timeframe does need to be used to balance "current prices" against "last-transaction prices", and 24 hours seemed reasonable. I am just unsure how to solve this problem reliably. Perhaps with some networth rounding, like to the nearest million? However, this is a pretty important issue and does need to be worked out.

To your other idea, my picture of markets is completely removed from current public markets, and they are something I'd scrap anyway. I'd always imagined that a player could see all prices and sellers (which is necessary for political purposes anyway, don't buy from your enemies ), but in addition would also have the option of conducting transactions as I described above.

[FireFrenzy]

The only reason I used the 24-hour frame is because networths would fluctuate quite a bit otherwise. Not to mention, some timeframe does need to be used to balance "current prices" against "last-transaction prices", and 24 hours seemed reasonable.

Fluctuating networths is true, though that'd reduce over the set. I was figuring that, if you added an 'average price' entry and a 'total transacted' entry for each unit in the database for each server, this could be updated on every transaction by simply adding the amount of the given unit to the 'total transacted' and then re-averaging the 'average price' entry as well.

No doubt that you know how the calculation would go, but I'll just add it for the sake of being verbose, and for any wishing further illustration.

Something like:
Total | Average Price --> both previous db entries for a given unit
Transaction Total | Transaction Average Price

Transaction Total / Total = Transaction Percentage of Total
(Average Price - Transaction Average Price) / 2 = Total Average Price
Total Average Price x Transaction Percentage of Total = New Difference
Average Price -= New Difference --> replaces previous db entry
Total += New Total --> replaces previous db entry

Ex.:
200 | $10
20 | $5

20 / 200 = .1
($10 - $5) / 2 = $2.5
$2.5 x .1 = $.25
$10 - $.25 = $9.75
200 + 20 = 220

I think that's right. Maybe not. Anyway, that's the whole of that; perhaps there are more barriers to implementation of which I haven't thought, though.

[The Beatles]

Yes, but what I said was that this means that after a large number of transactions have accumulated, the networth price won't fluctuate at all. Meanwhile, if game conditions change, this is not reflected in average prices. That's why I think the averaging should be over a recent time period (say, 24 hours). This is separate from the issue of only doing it every 24 hours, actually. It's not easy to implement, as far as I can tell right now.

[FireFrenzy]

Ah, I see what you're saying. True, unless the computation was quite precise, it wouldn't change.

Well, perhaps randomize the time period within a range? EDIT: I'm not familiar with the applicability of cron-type/periodic code, so I'm not sure exactly how far a stretch all this would be to implement.

[The Beatles]

I suppose we could do that, but it would lay the market open to charges of unpredictability. I think size considerations usually outweigh manipulation considerations, but then again, countries (e.g. China) regularly engage in such manipulation, setting the yuan artificially low to encourage trade.

Also, we should compute these worths based on transactions ONLY on openly traded markets. In addition, perhaps there should be some restriction on market openness: perhaps openness or closedness of a market can't be changed? Or a market can only be changed to open?

The banking system should also have some ability to make regularly scheduled (say, daily) payments. This would allow regularly-paid services (such as insurance) to exist more easily. It's also realistic...

Some more things related to invitations: someone should also be able to apply to join a market, not just receive invitations.

And finally, there should be a "needed" board of some sort, maybe just an internal forum, where people can post what sort of services or goods they want to see on a market, after which sellers can potentially create them. This is all in the name of perfect information. Come to think of it, all markets and banks should have associated forums.

[FireFrenzy]

These all seem like pretty reasonable ideas.

For this:

In addition, perhaps there should be some restriction on market openness: perhaps openness or closedness of a market can't be changed? Or a market can only be changed to open?

hmm, it seems like you're getting at something here, but I'm simply not quite sure what. Basically, you're debating as to whether the market owner can open or close a market after establishing it? I suppose that he or she should be able to do as he or she wishes. It seems you have an idea on why one would wish to close a market, though I can't quite pinpoint any thoughts.

I suppose if the market is yielding the cheapest prices on particular goods, the owner may wish to close the market if he or she is marketing said goods, so to get a higher price on another market.

[The Beatles]

Sorry, I ought to have elaborated. That is one scenario; I was thinking of manipulation of networth values. Players A (owner) and B are members of a closed market. A opens it and sells goods at an unrealistic price, B immediately buys them. Then A closes the market. Voila, a transaction conducted on an "open" market. Just to clarify, I too think the market owner should have freedom to do as he/she wishes.

This raises a sub-point: a user ought to be able to sell the same good on multiple markets, I think. Do you agree?

[edit] A further thought: I think I've been wrong about average prices. When we talk about the price or worth of an item on the market, we never think about the average past prices. We usually think about the lowest price it's available at, right now, on the open market. So one option is to use that in our calculations. The other option is to consider the average price of all the goods currently on sale on open markets. The obvious disadvantage is that both of these are prone to manipulation. I do wish we had a trained (or at least in training) economist with us!

[The Beatles]

Some further thoughts: sellers ought to be able to set restrictions on their goods such as selling a maximum amount per player per time period. These would be easy to contravene, but realistic.

The other issue is transaction time. (I should prefix my question by saying that aid ought to be handled the same way as the markets, as it is just a special case of them.) Should transactions be immediate? I tend to think so, as this makes for a more fun economy. On the other hand, this makes it too easy for goods to be swapped around with impunity. So I think the most reasonable compromise for our virtual game is to have transactions cost money (to the seller). A small, game-minimum fee, either flat or a percentage of the value (for aid, a percentage based on "worth", which is the same can of worms as the one we are discussing for networth) should be imposed on all market transactions and aid. This might not have to apply to services, just market good transactions and aid. This is, after all, realistic, considering the expense (and most importantly, risk) in sending goods.

A sack of diamonds might not be heavy to carry, but given its value, it would only be entrusted to a highly-trained and highly trustworthy force of couriers. I am just pointing this out to illustrate the relationship between the value of a good and the price of sending it.

Random: private market owners might reasonably wish to impose a fee or tax on their users (not, of course, enforced, but like everything in our proposals, player-enforced) rather than merely commissions or tariffs.

[FireFrenzy]

This raises a sub-point: a user ought to be able to sell the same good on multiple markets, I think. Do you agree?

I think that this makes sense, and it would further enable a competitive marketplace.

A further thought: I think I've been wrong about average prices. When we talk about the price or worth of an item on the market, we never think about the average past prices. We usually think about the lowest price it's available at, right now, on the open market. So one option is to use that in our calculations. The other option is to consider the average price of all the goods currently on sale on open markets. The obvious disadvantage is that both of these are prone to manipulation.

This more true to real-life. I think that goods are usually valued by their average purchase prices; this is how price indices are typically determined: they are random samples of current prices, rather than only the lowest.

The problem, of course, is as you mentioned above. This obviously becomes more problematic for the smaller the player-base. An alternative: well, on what are prices based? For one, the value of goods is largely based on scarcity (i.e., diamonds vs. water). Likewise, have the value of goods be somehow based upon the total current amount of them present in the game. I'm not exactly sure as to a proper implementation: perhaps defined by the ratio to total goods available? Of course, one needs to take into consideration how easy it is to produce a given good, as well. In any case, this is much less prone to manipulation, as it would be a game-wide trend to alter, rather than simply lowering certain current-market levels.

I do wish we had a trained (or at least in training) economist with us! 

No worries on the wishes, I'm actually a current college student studying Economics.

So I think the most reasonable compromise for our virtual game is to have transactions cost money (to the seller). A small, game-minimum fee, either flat or a percentage of the value (for aid, a percentage based on "worth", which is the same can of worms as the one we are discussing for networth) should be imposed on all market transactions and aid. This might not have to apply to services, just market good transactions and aid. This is, after all, realistic, considering the expense (and most importantly, risk) in sending goods.

This makes sense. As in real-life, the sellers would probably just have higher prices unilaterally, and dissipate some of the fee to the buyers via such.