Abstract: How to reduce the agent cost,which directly influnces the core competitive edge of businesses engaged in outsourcing operations, is the essential concern of this paper. This paper analyzes the mechanism of the agent cost first, considering the importance of the risk compensation in the incentive contract which aimed at the "Principal-agent question", then ameliorates a classical incentive contract model, in order to reduce the agent cost. The results prove: it can reduce the agent cost and the incentive cost through putting the factor of risk compensation into the best inspire with contract. Consequently, the agent cost reduces. Our analysis has the significance at large, which is the same with all kinds of the activity of Outsourcing. It has implications for the design of the best incentive contract mechanism of cooperation benefits between producers and suppliers.

Key words: principal-agent, best incentive, risk compensative