This paper presents a general equilibrium model in which all prices and quantities transacted are explicitly chosen by economic agents: there is no Walrasian auctioneer. Multiple equilibria occur with prices and wages taking their Walrasian values. Equilibrium quantities may also be Walrasian, or they may involve some price-taking workers being rationed in selling labor. This involuntary unemployment results from self-confirming expectations of inadequate effective demand, as in some interpretations of J. M. Keynes' ideas.

This paper presents a general-equilibrium model in which all prices and quantities transacted are the direct choices of econom ic agents: there is no Walrasian auctioneer. Multiple subgame perfect equilibria exist with prices and wages at their Walrasian levels. Among the equilibrium allocations are the Walrasian ones, but there a re also outcomes in which price- and wage-taking workers are rationed in the labor market and are unable to sell all the labor they want a t the prevailing wage. This involuntary unemployment results from sel f-fulfilling expectations of inadequate excess demand as in some inte rpretations of Keynes's ideas.