Severance Pay Rules and Structural Layoff Decisions
Oliver Fabel
The paper develops a formal model of the optimal age-tenure structure in layoff decisions. Based on a linear Bayesian learning process a severance pay rule, which is derived from voluntary participation and separation conditions for individual workers, determines the dismissal costs. An optimal selection policy generally equalizes the expected profit contributions over the marginal workers retained in each age-group. Given plausible assumptions, the selection criteria and layoff rates for older workers decrease. However, the effect of tenure on selection and layoff rates remains ambiguous.

Simplified Discounting Rules, Variable Growth, and Leverage
Frank Richter
It was shown earlier that unconditional expected cash flows can be discounted at a constant risk-adjusted discount rate if these cash flows follow a multiplicative binomial process with a constant growth rate ("simplified discounting rule"). This paper extends this analysis to the case of variable growth rates of expected cash flows. The earlier analysis was also based on the assumption of all-equity-financing. The impact of a financing strategy based on deterministic leverage ratios is included in this paper as well. It analyses the conditions to apply the weighted average cost of capital as a discount rate. The paper reflects the results of Modigliani/Miller (1963), Miles/Ezzell (1980), and Löffler (1998) vis-à-vis the background of this theory and discusses issues of practical application.

Competing with Mr. Postman:
Business Strategies, Industry Structure, and Competitive Prices in Liberalized Letter Markets
Helmut M. Dietl/Peter Waller
Letter markets are still highly regulated in most countries. Some countries, such as those of the European Union, plan to liberalize letter markets within this decade. Competition will provide many new challenges and opportunities for established and new players. In this paper we analyze business strategies and the resulting industry structure in liberalized letter markets. We describe the economic characteristics of the industry and identify business models for new competitors. To predict the industry structure, we construct a game-theoretic model, which takes into account the relevant segments and geographic differences of the letter market. The model allows us to compute equilibrium prices, market shares, and profits for the incumbent and entrants. We can thus assess the different strategies. Although we calibrate our model with German data, our results are general and can be applied to other countries with similar characteristics, such as France, the U.K., and to some extent even the U.S.

On the Legitimacy of Accounting Standard Setting by Privately Organised Institutions in Germany and Europe
Matthias Schmidt
Recent developments in German and European accounting regulation show a growing relevance of accounting rules set by privately organised institutions. This article refers to those developments. It analyses the institutional legitimacy of accounting standard setting by private authorities, using an economic approach based on the concept of hypothetical consent. Legitimacy concerns occur particularly for the German standard setter, since we cannot preclude various conflicting interests. The article provides suggestions for the German legislature to mitigate the problem and to facilitate the instalment of structural safeguards that can assure a legitimate standard setting process. The paper also discusses in what way it is possible to utilize the merits of regulatory competition as an additional safeguard to maintain legitimacy of private standard setting bodies. Regulatory competition among different standard setters in Europe is particularly considered to be an alternative to a harmonisation of accounting rules on the basis of one single set of standards as intended in a recent EU Commission’s proposal.