Economics and Mental Health

100 Pages Posted: 2 Apr 1999 Last revised: 10 Apr 2022

See all articles by Richard G. Frank

Richard G. Frank

Harvard Medical School; National Bureau of Economic Research (NBER)

Thomas G. McGuire

affiliation not provided to SSRN

Date Written: March 1999


This paper is concerned with the economics of mental health. We argue that mental health economics is like health economics only more so: uncertainty and variation in treatments are greater; the assumption of patient self-interested behavior is more dubious; response to financial incentives such as insurance is exacerbated; the social consequences and external costs of illness are formidable. We elaborate on these statements and consider their implications throughout the chapter. Special characteristics' of mental illness and persons with mental illness are identified and related to observations on institutions paying for and providing mental health services. We show that adverse selection and moral hazard appear to hit mental health markets with special force. We discuss the emergence of new institutions within managed care that address long-standing problems in the sector. Finally, we trace the shifting role of government in this sector of the health economy.

Suggested Citation

Frank, Richard G. and McGuire, Thomas, Economics and Mental Health (March 1999). NBER Working Paper No. w7052, Available at SSRN:

Richard G. Frank (Contact Author)

Harvard Medical School ( email )

Department of Health Care Policy
Boston, MA 02115
United States
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617-432-1219 (Fax)

National Bureau of Economic Research (NBER)

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Thomas McGuire

affiliation not provided to SSRN

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