This is just theodicy with extra steps! I'm reminded of the Culture novel Surface Detail, which basically revolves around d the ethics surrounding simulating c

This is just theodicy with extra steps! I'm reminded of the Culture novel Surface Detail, which basically revolves around d the ethics surrounding simulating consciousness. There is a society in the book which runs afterlife simulations, including a pretty horrible hell. Conflict over whether this should be allowed to continue is one of the main drivers of the plot.