In the thirteenth century, Italians and Dutch traders went to Champagne not to drink champagne but to trade.  They had to travel there and back and worry about theft.  There was always the chance that some dispute would arise at the trade fairs.  Courts arose to enforce contracts.  Did they arise spontaneously in Coasian fashion, created by contracting parties to facilitate trade?  Or was their government intervention?  The first view is advocated by Milgrom, North and Weingast in a lovely and influential paper. MNW invoke some “stylized facts” about the institution of the “Law Merchant”, They claim the law merchant was a kind of store of the history of past exchanges.  The law merchant could substitute for the incomplete knowledge of trading parties themselves and had good incentives to be honest himself to retain his income as a law merchant.  The paper is mainly theoretical and has a nice prisoner’s dilemma model with traders changing partners every period.

A new paper by Edwards and Ogilvie challenges the stylized facts that motivate MNW.  They claim:

The policies of the counts of Champagne played a major role in the rise of the fairs. The counts had an interest in ensuring the success of the fairs, which brought in very
significant revenues. These revenues in turn enabled the counts to consolidate their political position by rewarding allies and attracting powerful vassals….

The first institutional service provided by the counts of Champagne consisted of mechanisms for ensuring security of the persons and property rights of traders. The counts undertook early, focused and comprehensive action to ensure the safety of merchants travelling to and from the fairs..

A second institutional service provided by the rulers of Champagne was contract enforcement. The counts of Champagne operated a four-tiered system of public lawcourts which judged lawsuits and officially witnessed contracts with a view to subsequent enforcement…

A final reason for the success of the Champagne fair-cycle was that it offered an almost continuous market for merchandise and financial services throughout the year, like a great trading city, but without the most severe disadvantage of medieval cities – special privileges for locals that discriminated against foreign merchants

The paper is an interesting read and there are lots of rich details about the Champagne fairs themselves.