Abstract: There are a selles of principal-agent relations in organization institution of modern enterprises. The principal-agent mechanism based on separating of proprietary rights and management rights is not only necessary and effective, but also there is contradictory of difference between utility of functions of principal and agent. West management scientists have researched on the difference between utlility functions of principal and agent. They suggested theory of principal-agent. This paper gives a brief introduction to the theroy, and discusses the construction of healthy encouragement-constraint mechanism and the ways to improve principal-agent relations through assessing and rewarding/punishing to agent, imPlementing objective management, cultivating enterprise culture, and constructing normal running market.

Key words: organization institution of modern enterprises, principal-agent relations, utility function, agent cost, constraint cost, objective management, enterprise culture