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Eu Novel Food Regulation and Firm Investment Decisions

In this study, we investigated the relationships between ex ante regulations and innovations via firm investment decisions. We first present a conceptual framework based on the option value theory. We then exploited this model to provide an interpretative framework for the results of an empirical analysis in which we assessed the authorization procedures of the EU novel food regulation. Our findings were based on a novel detailed dataset of 289 applications submitted under both the former (Regulation 258/97) and current EU novel food regulation (Regulation 2283/2015), in which we gathered information on the number of applications, duration of the authorization procedure, and determinants of approval of novel food applications. We found relatively stable applications across the years, with an upsurge following the enforcement of the current novel food regulation, which is explained by a reduction in option value. We also found a decreasing trend in the ceiling value for the expected duration of the relevant procedures. However, this upper limit appears irrelevant in determining investment decisions. Finally, our results suggest that compared with public entities, private entities and applying for regulatory approval of NF ingredients instead of a product have higher success.