This is an application for a Senior Scientist Awar5d to study the new economic relationships in mental health services created through the advent and growth of managed care, capitation, decentralization, and market competition within the U.S. health care system. Three different, ut interrelated, projects are proposed. The first is a study of the impact of managed care on the supply and income dynamics of the mental health work force, as well as on the supply patterns and staffing ratios of managed care organizations (MCOs). The aim is to clarify the cost- effectiveness and optimal mix of various types of mental health providers across types of MCOs and geographical regions of the United States. The second project is a translation of empirical findings into policy implications and recommendations for the public financing of mental health care services, based on a prior five-year study of California's legislative attempt to reform the state's mental health care system by decentralizing the financing and administration of care to local mental health authorities. The aim is to delineate in a clear and comprehensive way where, via legislatively mandated unleashing of market forces (risk shifting, changing financial incentives, and competition), publicly funded mental health care systems are heading and what the economic impact of the changes will be nationwide based on the lessons learned from California's Program Realignment implementation. The third study is an analysis of the policy-making underpinning the passage and implementation of the 1996 Mental Health Parity Act. The aim is to understand why and how political and economic factors interact in the regulation of mental health insurance, an area of inquiry that have heretofore remain virtually unexplored by health economists and political scientists. These projects, to be conducted under the auspices of the School of Public Health and the Center for Mental Health Services Research at the University of California-Berkeley, are designed, in terms of overall research career development, to enhance skills on two levels: applied policy analysis and methodological rigor. In the first case, the projects afford the opportunity for concentrated analysis of the policy implications of empirical data, and thus an opportunity to inform ongoing and future policy deliberations at the state and federal levels, with respect to the cost, delivery, and quality of mental health care. In the second case, new approaches to econometric modeling of mental health provider, practice, and market characteristics are needed to sort out and clarify the complex economic relationships in markets with a high level of managed care penetration and increasing competition. Until those relationships are better understood, it is difficult to assess the impact of managed care in the face of apparent cost reductions achieved through changes in price and utilization. The first project proposed here, in particular, lays out that challenge.