There is concern in developed countries about the increasing cost of health care. Developers of new psychopharmacologic agents are asked to demonstrate cost-effectiveness as well as safety and efficacy before widespread use is encouraged. Pharmacoeconomic studies are designed to evaluate the health outcomes and cost-effectiveness of new medical treatments relative to existing treatments. Retrospective and prospective research designs have been used in pharmacoeconomic studies. New approaches such as medical effectiveness studies and modeling studies based on clinical decision analysis are increasingly used to evaluate cost-effectiveness. This article introduces important concepts of pharmacoeconomic evaluation and discusses the methods and their strengths and weaknesses. Safety and efficacy studies and pharmacoeconomic studies provide useful and complementary evidence on how a new treatment affects clinical, health-related quality-of-life, and economic outcomes.