An essential feature of an RPG is its leveling system, and part of that system is the continued upgrading of the player's equipment and, depending on the game, the equipment of the party members. Given the length and depth of most RPGs, the economy in the game is a crucial design element--tying in to its accessibility to new players, its fun-to-play factor, and quite possibly its replay value. I'm going to try and make a brief survey of some basic types, their pros and cons, and then leave it open for you the reader to fill in what I know are many blanks in my knowledge.
Speaking of blanks, I'm going to make the first category one that I admit I have little direct experience with:
When I think of loot drop in games, I instantly think of the Diablo series. I enjoy the games, but I have wrists that are irritated by excessive mouse-clicking, so I haven't exactly been able to really get into the game. But the sheer depth (yet deliciously semi-random) nature of the weapons and other items that drop from dead enemies fuels the addiction of the dungeon-crawling game.
From a totally different angle, there's the recent game Too Human. I played the demo, and, well, there were a lot of things I could criticize about the game. But here the 'loot drop' model is very poorly constructed. Erik Brudvig in his review for IGN begins by saying that "if you love collecting random loot drops, you'll find a lot to like here." He then adds later: "the game puts a big emphasis on leveling your character and outfitting him with better equipment, but then scales enemies and loot drops to you. The thrill of finding a sweet weapon is nearly lost -- you're stronger but soon enough the enemies are too." I seem to remember another reviewer (but I can't find the article) also commenting that, since many weapons are class-specific, you can have a 'supreme sword of ass-kicking' drop, only to find out that you can't equip it because you're not the right class.
I enjoy loot dropping and foraging in RPGs, but the design mistakes in implementing this particular in-game economy turned me off.
To a certain extent, everything is derivative (or somehow similar) to the loot drop model. One way, however, this model changes is when leveling is capped--not via a hard cap--by a 'soft' or 'hidden' cap. This hidden cap comes into play in games that literally have only so much experience to be earned, usually by having a finite number of enemies--and enemies that, once cleared, never respawn. First in my mind when it comes to this model are two games from the same company: BioWare's Knights of the Old Republic and Mass Effect.
Let's take the classic first. There are many things to laud KOTOR about, but it's economy is more of a mixed bag. There are definitely items worth having--especially armor--at high-dollar amounts that are unique to certain vendors. At the same time, the tuning is way off.
During the fight through the final planet before the Star Forge, my inventory was filled--FILLED--to the brim with countless blasters, low-level lightsabers/crystals, and other miscellanous items. But no opportunity to cash in for credits, because, well, the endgame had already begun. So I finished the game incredibly rich, but to no use. Yes, it's more of an annoyance, but every time I've played the game I always think it's kind of odd. Sure, there are plenty of useful items like health packs, but. . . .
One thing I have to praise, however, is a side story many players probably never uncovered. One of the locations you can visit in the game is a space station orbiting Yavin. It's relatively unremarkable, though a decent place to stock up for supplies. But if you visit enough (I believe three or four times, if I remember) you get drawn into defending the proprietor from an especially nasty cadre of thugs.
This is a HARD fight--easily the hardest fight in the game. What's your reward? I forget if there's anything you get outright, because that's not the biggie. The owner gives you the opportunity to brows his 'special' stock: the two best lightsaber crystals in the game. They're not cheap (20,000 credits a pop) but well worth it. I love the optional nature of the fight, and the fact that the reward is something more than worthwhile.
In many ways, the later Mass Effect went the wrong direction. Salvage and loot drop in KOTOR is occasionally rewarding, but mostly to build up credits through re-sale. The balance here is almost entirely reversed. I've played the game front to back twice, but several partial starts as well. Even with combat kicked up to the hardest difficult level available, I found items worth purchasing on (at best) an occasional basis. There are tons of vendors--even a quartermaster aboard your own ship!--and almost nothing that was worth buying. The equipment I gained by looting was always better, and I ended each playthrough with an absolutely ridiculous amount of credits. And, honestly, I stopped picked up items towards the end unless they were actually better than my current loadout.
Several games could fit the bill here, but my main experience is with the Elder Scrolls III: Morrowind, The Elder Scrolls IV: Oblivion, and Fallout 3. How different could these games get from those above?
All three, but especially Oblivion and Fallout 3, have hard level caps with essentially infinite enemies. It's not so much that areas re-populate with enemies (though many do) or that there are random battles (a la JRPGs like Final Fantasy games), but that your character is maxed out long before you've seen and done everything. These are 'completionist' games--games that take serious addiction/love to actually exhaust the content.
That's one difference. But how does that affect the economy? The sheer expansiveness of the world allows for some interesting design decisions. For one, all three games are filled with essentially useless items. Some are genuinely useless, while others weigh far too much (compared to their value) to make them worth carrying back to a store for re-sale.
Weight of items in an inventory. I didn't really mention this concerning the games above, but this is the only model that makes sense. Certain items weigh more--in a quite realistic progression--and your character can only carry so much. This restricts the foraging and makes it more purposeful. *I realize Diablo could fit in here, but it's not quite the same. Feel free to prove me wrong, though!*
In contrast, games in the previous category either have no cap on inventory or a sheerly arbitrary one (Mass Effect is capped at 200 items, irregardless of item type). That just doesn't make sense, especially the arbitrary caps. It's more realistic, and from a design perspective, it creates a nice rhythm of 'explore, gather loot, visit town, resell, repeat'.
And, if that's not enough realism for you, another element comes in. Your weapons and armor degrade and require repairs. The games from the Elder Scrolls series and Fallout 3 different slightly in terms of mechanics, but the central feature is attrition. Especially in Fallout 3, it's sometimes difficult to survive--simply because, you need more money to buy x, but to buy x you need to explore for loot. And looting wears out your equipment, and usually means getting injured fighting enemies, and that requires expensive medical treatment.
I recently restarted Fallout 3 with combat kicked to the hardest level, and it's a struggle to have enough ammo on hand and stimpaks to heal myself for certain combat situations. This makes the game that much more addictive.
So What's the Point?
Like with anything, there's no absolute right answer, but the foraging realism model seems superior to me. Maybe it's just because I'm a fan of the particular games in question, but it allows the game to fall into a natural rhythm similar to the FPS genre's "30-seconds of fun" model executed so well by the folks at Bungie.