In the competitive model, externalities lead to inefficiencies and inefficiencies increase with the size of externalities. However, as argued by R. H. Coase (1960), these problems may be mitigated in a decentralized system through voluntary coordination. The authors show how coordination is...

We study the behavioural foundation of interdependent preferences, where the outcomes of others affect the welfare of the decision maker. These preferences are taken as given, not derived from more primitive ones. Our aim is to establish an axiomatic foundation providing the link between...