An agency mechanism to ensure the efficient deployment of hydropower resources by electricity market competition is proposed. It can be used to solve the low efficiency problem when cascaded hydropower stations individually behave on behalf of their respective interests. Real option pricing model and bargaining model are used to analyse the agency mechanism. By introducing multi-dimension stochastic path simulation and block separation based on annual profit index， Barraquand-Martinea model of American option pricing is improved to evaluate feasible long-term profit of a hydropower station. A bargaining model is applied to analyse the noncooperative dynamic game equilibrium of agency. The numeric result verifies that the agency mechanism of cascaded hydropower stations can achieve the Pareto improvement of hydropower resources' deployment， and shows that the effects of uncertainty factors on value of real option can be considered in the Barraquand-Martinea model.