Professor examines legal, financial impacts of virtual communities

June 20, 2008

Virtual communities such as Second Life and multi-player online games are not exempt from the law, financial regulations and public policy, a researcher in Penn State’s College of Information Sciences and Technology (IST) argues in two conference papers.

John Bagby, IST professor and co-director of the University's Institute for Information Policy, recently presented two papers -- one dealing with legal implications of virtual worlds and the other outlining financial implications in those communities.

He presented the paper "Public Policy in the Virtual World Imagining: How It Could Curb Your w00t" at Playing to Win '08, a two-day conference held at Penn State in April. He presented the paper "Adapting Virtual Finance to Simulate Financial Information Security Risk Analysis: A Risk Management Strategy" at the fifth annual Forum on Financial Information and Cyber Security, held in May at the University of Maryland's Smith School of Business.

The first paper examines Second Life's terms of service and end-user license agreement and the cases that have sprung from it in areas such as intellectual property and dispute resolution. Bagby argues that public policy will eventually cause virtual worlds to conform to existing laws and regulations, even if they are playing by their own rules now.

"These people have been riding the crest of the 'w00t wave' for the past two or three years, and now the realities of public policy are settling in," Bagby said. "There are real-world protections and regulations that are regarded by fellow virtual-world participants as a substantial achievement. Unfortunately, sometimes such activities can’t just secede from society."

The term "w00t" is a joyous expression commonly used by the online gaming and virtual communities. It was Merriam-Webster’s word of the year in 2007, and Bagby thought it was a fitting for his paper because of the joy people feel when they do something in Second Life or other virtual communities that violates real-world laws or policies.

The second paper examines the implications that Linden dollars and other virtual currencies have on real-world financial policy. A real concern, Bagby said, is the use of Second Life and other virtual worlds for money laundering and other illegal activities that may go unnoticed in-game.

"Linden dollars are being used by the virtual environment as if they are real money and real money is governed by the Federal Reserve," Bagby said. "As the stakes rise and cyber forensics continues to improve, virtual environments will lose their untamed 'Wild West' characteristics. This is already happening."

Bagby, who joined IST after spending 18 years at Penn State's Smeal College of Business, said he started studying virtual worlds after seeing his colleagues -- and even his 17-year-old son, taking part in them.

"I started to think about how public policy could play a role in all this," Bagby said. "I started to question, 'Is cyberspace beyond the reach of law and public policy?' "

The answer, he found, is "no," despite what a few cyber law and IT scholars -- people he calls "cyber-libertarians" -- may say.

"The cyber-libertarians have said that these communities are hands off because they have no concrete physical location," Bagby said. "This is just another replay of the arguments that were made about e-commerce and cyberspace in the past."

As Bagby found, this research fits in perfectly with the previous work he had done, both at Smeal and IST.

"I spent most of the '90s studying e-commerce regulation and policy, and that’s the area of specialty I brought to IST," he said. "This is just another environment where those things will be huge. The preponderance of public policy scholarship presented thus far is that cyber law adapts easily and effectively to virtual environments."

Last Updated July 28, 2017