Abstract: The reforms of state-owned enterprises and government institutions have made tremendous progress, but the reform of the management system of institutions has comparatively lagged behind, the problem of which has troubled us since. This paper, by applying the system of theoretical economics, attempts to clarify the agency relationship that relates institutions, and meanwhile by applying the principal-agent theory, analyzes the incentive and restraint that exist between the public institutions, governmental units and individuals. On the basis of the discussion, this paper intends to provide a new perspective for analyzing the reform of public institutions.