Beyond these simple lessons, the basic Principal-Agent model has two main values. First, the model gives us a language for expressing and analyzing abstract concepts such as reward, effort, and incentives in terms of more concrete model elements
such as production (y = a + ε), contract (w = s + by), and payoffs (U = w - c(a) to the Agent and π = y – w to the Principal). Second, and probably more important, the model teaches us much by what it leaves out