Tools to analyse the SL economy

As a few people have pointed out SL is a purely luxury economy.

You might be able to argue that there is a human psychological need for a shelter, so land (owned or rented) is the only basic need we have, but I know enough people that are 'homeless' in SL that I'm not entirely convinced about it.

There are enough freebies for clothes etc. that you don't need anything else - although as the owner of a huge wardrobe I'd suggest lots of us do use other things but they are luxuries.

Anyone have a good tool or model for analysing a 100% luxury market? The models I've found on the wiki and google all have assumptions about needs etc. that just don't apply to SL. With some time and thought it might be possible to tease the relevant parts out, but right now I'm struggling for a model to use.

I don't think so.

One reason that I and at least one respondent were eager to see the announced (Real Soon Now) "State of the SL Economy Report" is that SL breaks at least one fundamental axiom of the last few centuries of economic models and therefore traditional analyses either don't apply at all or would need to be altered severely. As a trivial example, the conventional opportunity cost choice between "guns" or "butter" is rather hard to apply when there is no such thing as material scarcity and you can make "butter guns" (or "gun butter" or sumptin). A slightly less trivial example is what happens to the Price Elasticity of Supply when marginal costs of production for a brick are the same as for an entire castle?

I suggest it would be more productive to think of SL as a 100% service economy, and more specifically, part of the software sector of that economy.

If you buy a scripted door from me (say), the material cost is almost zero ("almost" because maybe the door will be covered with a texture that I paid a few real dollars for). What you're really doing when you buy my door is partly compensating me for the 100s of hours I spent writing the scripts that make the door into a useful object that you want to buy. In other words, you're buy my services as a computer programmer. Same goes for almost anything else you buy in SL. Even land.

Moreover, every object in SL is really just a little (sometimes not so little) computer program for drawing pixels on your screen (and maybe making a few noises). When I sell you an object, I'm really just selling you software. If a casino lets you on to its dance floor, it's really just letting you use its dance animation software. So we're all part of the software sector of the service economy.

Economists are having a lot of trouble figuring out how to analyze service economies in general and the software industry in particular, but I'm sure there's a vast literature on these topics.

Well, people are paying money for services in SL, sure, but that doesn't mean the SL economy by itself corresponds to a service economy in RL. There are still too many differences.

I have a feeling that any world where nobody needs food, water, shelter, heat or power and there are no natural resources apart from land is not ever going to fit well into existing models.

I think the reason that there's so much interest in (a) land and (b) exchange rates here is precisely because they're the only things that even come close to fitting existing RL models, and even then it's only a vague fit, particularly because all the other factors contribute to those as well.

For instance, you pretty much never see people attempting analyses of how prices are set in SL - there've been a couple of threads recently which might have gone in that direction, but in the end they just petered out. Yet it's obviously extremely important to SL's economy. "Inflation" is not meaningful without the concept of things to actually spend money on. It's too alien, and people can't just use vague bits of half-understood RL economics to analyse it, so they pretend it doesn't exist as an issue or say "the market takes care of it, it's all good".

edit: That sounded a bit bitchy; I don't know how it works either.