The classic agency model of incentives in organizations (often called the model) generally posits that the agent is risk averse and her effort is described by a compensation is portrayed as a linear function: w = s + by where w is the wage, is the fixed salary and the intercept, and b is the bonus rate and slope of the wage line. In this general model:

1. A higher b indicates a greater incentive for the lower insurance (i.e. )

2. Ceteris paribus a higher b indicates the principal bears relatively less risk

3. Both of the above