BROOKE GLADSTONE: This month police in Japan arrested a Chinese student for mugging other players in a massive multi-player online role-playing game called Lineage II. How did the student do it? Well, every player in these games has an online character or avatar, but the games are also populated by software robots or bots that look like avatars. In this case, the student used a bot to steal virtual equipment from other players' avatars to sell for real cash offline. If this gives you a headache, get used to it.

This week another game, The World of Warcraft, reached more than one million players in North America, a continental first. More players means more participants in the virtual economy where real dollars can buy virtual goods that can better help you navigate the game world. In fact, you can even invest in these fantasy realms.

In December an Australian gamer paid 26,500 real dollars for a virtual island in the game Project Entropia. He's already made more than 9,000 dollars off that land by parceling it off and levying taxes. What’s going on here? Indiana University associate professor Edward Castronova is an expert in this virtual economy. Welcome to the show.

EDWARD CASTRONOVA: Thanks a lot, Brooke. It's exciting to be on NPR.

BROOKE GLADSTONE: Now, why would people spend real money for these virtual products?

EDWARD CASTRONOVA: Well, for the same reasons you might want a car. Okay? In the real world an automobile allows you to get to places you can't go to otherwise. You have to understand that cyberspace is being built out in a fantastic, massive, immersive frontier. You can't just log into one of these games and instantly see all the things that are in there. You have to acquire certain items and powers to see more of the stuff.

And let's remember, these are dreamscapes. These are fantasy places. Ask yourself if someone built a world based on your personal fantasy, would you want to go? How much of it would you want to see?

BROOKE GLADSTONE: So when you entered Norrath, the world of EverQuest, your avatar started out probably as fairly puny, as new characters, new avatars do. Did you find yourself in this position; there were places you wanted to go you couldn't get there from here?

EDWARD CASTRONOVA: Well, certainly. I mean, my first reaction to this world was I, I could tell there were people in it and there was a lot of energy - there was all this running around and socializing and trading. And so my first thought was, I, I want to explore and just see what these people are doing. I walked out of the city and was killed by a rat in 30 seconds.

BROOKE GLADSTONE: [LAUGHS]

EDWARD CASTRONOVA: And that immediately set me on the process of saying, "Well, if I'm going to be a scout, if I'm going to be the Amerigo Vespucci of this world [LAUGHS] I need to get a good ship or I need to have equipment and resources." And that set me on the process of building up my character.

BROOKE GLADSTONE: And you build up your character by vanquishing enemies -

EDWARD CASTRONOVA: Yes.

BROOKE GLADSTONE: - by taking their money or their weapons and so forth, becoming stronger. Now, that takes a lot of time.

EDWARD CASTRONOVA: Mmm -

BROOKE GLADSTONE: The point of this virtual exchange is you can cut that time in half or eliminate that time altogether. [CROSS TALK]

EDWARD CASTRONOVA: Right.

BROOKE GLADSTONE: In fact, you can now buy a fully-formed avatar that comes fully loaded like a car and just take it for a spin in Norrath.

EDWARD CASTRONOVA: What that trade takes advantage of is the fact that these are products on the Internet so they're globally available. And that means folks with pretty low wage rates can use their time to build things up and then if a Westerner decides to pay them the equivalent of, you know, I don't know, five dollars an hour for the task of building up a character or acquiring gold pieces, you know, three to five bucks an hour isn't great money for us but there are people in Thailand and China and Korea who are actually making good money just farming these worlds for gold pieces and characters and selling them to us.

BROOKE GLADSTONE: In fact there’s a number of these, I guess you would call them, vendors of these virtual products and characters, one called gamersloot.net -

EDWARD CASTRONOVA: Mm-hmm.

BROOKE GLADSTONE: - actually employs people in Romania for a few dollars a day -

EDWARD CASTRONOVA: Yes.

BROOKE GLADSTONE: - to build up high-level characters and then they're sold off for big profits. These sorts of operations are considered sweatshops.

EDWARD CASTRONOVA: I'm not saying that the deals these folks are getting are fair. On the other hand, it is making money with a videogame. I'm just trying to remain neutral on this.

BROOKE GLADSTONE: [LAUGHS]

EDWARD CASTRONOVA: I've heard arguments on both sides. [LAUGHS] I think the way this market actually works is not so much on the sweatshop model. I think it's a cottage industry model, a vast army of people working more or less independently. And while they're casually playing the game, every once in a while they might put a little more effort into acquiring gold pieces because they know, "Hey, you know, I can sell them on eBay and, you know, buy that car stereo that I wanted."

My own personal opinion is that most of this commercial activity outside the game is actually a real pain because the point is not to, you know, spend a lot of money and get ahead. That's the game we're playing out here, right?

BROOKE GLADSTONE: Yeah.

EDWARD CASTRONOVA: The, the point inside the game is to have, for example, an economy within a level playing field. Wouldn't that be exciting, where everyone starts out with nothing and the only way you advance is your own worth?

BROOKE GLADSTONE: Meanwhile, though, you have a lot of people who are still being ripped off in transactions for virtual goods.

EDWARD CASTRONOVA: Mmm [AFFIRMATIVE].

BROOKE GLADSTONE: In the gaming world there's a trend towards lawlessness, land prospecting, get-rich-quick schemes. Basically it seems to be the virtual version of the Wild West.

EDWARD CASTRONOVA: I agree with that. That's, that’s my favorite metaphor for what's happening. This is a frontier town. There are hucksters. There are evangelists. There are scholars. There are, you know, guys who just dig imposing law and order. And the whole debate about human society and how we should live together is alive and vibrant.

That's because in the virtual world there are actual items of value that are being negotiated. We're talking about access, we're talking about fun, we're talking about self-development, self-esteem, social connections, reputation. All that stuff is in play there. And since there is no government sitting over it right now, everybody feels like they have a right to have a voice and boy, do they use it.

BROOKE GLADSTONE: Who should govern this world when it becomes less and less separate from the real one?

EDWARD CASTRONOVA: Well, we have laws on the book that create fantasies right now. They're called corporations.

BROOKE GLADSTONE: [LAUGHS]

EDWARD CASTRONOVA: The law treats them as people but they're fictional people. It serves a social purpose to create these fantasy human beings under certain rights and responsibilities. So I think there would have to be an international agreement on the legal status of fantasy worlds. And what I would advocate is a law not of incorporation but interration; in other words, the creation of new land, terra nova, where the idea is we will create fantasy spaces. Anybody who creates them has certain responsibilities. So, for example, you can't allow people to launder money from terrorism and crime in these places. They have to be sealed off from the rest of the world. That's a responsibility. But in return, the right of the owner is to regulate it as if it's its own country.

BROOKE GLADSTONE: One last question then. What if the creator of that world decides, "I'm done," turns the switch and wipes out a population of millions thereby?

EDWARD CASTRONOVA: What that person would be doing would actually be destroying not only economic assets that could amount to hundreds of millions of dollars but more importantly a human society, a series of relationships that for some people are increasingly becoming their only society, in other words, their friendship network, their families of choice.

And I think the law is going to have to say, "Well, if you're running one of these things you have a responsibility. If you want to get out of this business, you've got to turn the asset over to the users." You know, turning off the server would be the equivalent of going to a small town where everyone knows everyone else and forcibly picking them all up and scattering them all over the earth. There's a real human emotional cost to that, and I don't think it should be left to happen that way.

BROOKE GLADSTONE: Edward, thank you very much.

EDWARD CASTRONOVA: Thanks.

BROOKE GLADSTONE: Edward Castronova is associate professor in the Department of Telecommunications at Indiana University. His new book, Synthetic Worlds: The Business and Culture of Online Games, hits bookstores this fall.