Abstract: Federated learning provides an effective paradigm to jointly optimize a model benefited from rich distributed data while protecting data privacy. Nonetheless, the heterogeneity nature of distributed data, especially in the non-IID setting, makes it challenging to define and ensure fairness among local agents. For instance, it is intuitively ``unfair" for agents with data of high quality to sacrifice their performance due to other agents with low quality data. Currently popular egalitarian and weighted equity-based fairness measures suffer from the aforementioned pitfall. In this work, we aim to formally represent this problem and address these fairness issues using concepts from co-operative game theory and social choice theory. We model the task of learning a shared predictor in the federated setting as a fair public decision making problem, and then define the notion of core-stable fairness: Given $N$ agents, there is no subset of agents $S$ that can benefit significantly by forming a coalition among themselves based on their utilities $U_N$ and $U_S$ (i.e., $ (|S|/ N) U_S \geq U_N$). Core-stable predictors are robust to low quality local data from some agents, and additionally they satisfy Proportionality (each agent gets at least $1/n$ fraction of the best utility that she can get from any predictor) and Pareto-optimality (there exists no model that can increase the utility of an agent without decreasing the utility of another), two well sought-after fairness and efficiency notions within social choice. We then propose an efficient federated learning protocol CoreFed to optimize a core stable predictor. CoreFed determines a core-stable predictor when the loss functions of the agents are convex. CoreFed also determines approximate core-stable predictors when the loss functions are not convex, like smooth neural networks. We further show the existence of core-stable predictors in more general settings using Kakutani's fixed point theorem. Finally, we empirically validate our analysis on two real-world datasets, and we show that CoreFed achieves higher core-stability fairness than FedAvg while maintaining similar accuracy.