| Sumario: | Researchers Laurits Christensen, Dale Jorgenson, and Lawrence Lau have introduced translog direct and indirect preferences and the associated systems of demand functions. Lau proposed a new methodology for testing the implications of demand theory. They calculate the restrictions on the approximating translog function corresponding to the restrictions that demand theory imposes on unknown true preferences at any given point of approximation. They then proceeded to test these restrictions on the approximating translog demand functions. The purpose of this article is to examine this proposed methodology and the properties of the indirect translog system. The main results are as follows. With a utility approximation, it is not theoretically possible to discriminate between the hypothesis that translog preferences hold globally and the hypothesis that the true preferences satisfy integrability conditions at the base point of approximation. It is possible to define equally accurate approximations at the level of the demand equations or at the level of the marginal rates of substitution which do permit this distinction and which involve different parameter restrictions within the same estimating form. It is thus not possible to test the restrictions of demand theory on true preferences at a given point independently of the method of approximation selected.
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