Mental health economics addresses problems that are common to all of health economics, but that occur with greater severity in this context. Several characteristics of mental health conditions—age of onset, chronicity, observability, and external effects—make them particularly economically challenging, and a range of policies have evolved to address these problems. The need for insurance—and for social insurance—to address mental health problems has grown. There is an expanding number of effective treatments available for mental health conditions, and these treatments can be relatively costly. The particular characteristics of mental health conditions exacerbate the usual problems of moral hazard, adverse selection, and agency. There is increased recognition, in both the policy and economics literatures, of the array of services and supports required to enable people with severe mental illnesses to function in society’s mainstream. The need for such non-medical services, generates economic problems of cross-system coordination and opportunism. Moreover, the impairments imposed by mental disorders have become more disruptive to the labor market because the nature of work is changing in a manner that creates special disadvantages to people with these conditions. New directions for mental health economics would address these effects.