Gauthier’s Morals by Agreement assumes a laissez-faire original position, in which there is a perfectly competitive market where the equilibrium of individual choices is also economically optimal. Individuals are non-tuistically motivated and their reasoning is agent-relative. However, with externalities, optimality and equilibrium come apart and individuals have to be able to cooperate jointly with one another if their separate interests are to be advanced. Gauthier uses the theory of two-person positive sum bargaining to define the principles upon which the surplus secured by cooperative action is to be allocated. Gauthier’s own proposed formula for resolving the bargaining problem has been effectively criticized. However, his solution is more vulnerable to its assumption that the whole of the factor rent from labour should be included in the social surplus, and well as his neglect of Coase type solutions to the problem of externalities. In respect of public goods, his general theory would also suggest the adoption of Wicksellian taxes. However, his assumption that bargains based on non-tuistic motives can yield a theory of justice is defended.