Christopher Payne, "Asylum: Inside the Closed World of State Mental Hospitals"
Getting to that answer offers some interesting tidbits of historical trivia and pre-bauhaus color theory. You can check these details out yourself at www.colourlovers.com. While you are there you can find out why brides wear “something blue,” how conservatism came to be associated with the color red, the Sapphic/Shakespearian origins of the phrase “green with envy,” and the most popular color of highlighter pen in the US.
Oh yeah…
The short answer to the original question about green walled mental institutions? There was a Victorian boom in asylum construction with it’s related color palettes and a belief in the curative effects of the color green. Green is associated with springtime, grass, leaves, outdoors, all that. Victorians associated outdoor activities with health. For some reason poor kids who worked in coal mines and factories were less healthy than rich kids who played in the parks. Obviously, the color green was behind it all. Green + sunlight = health. Now go outside.
A typographic, designological, visulicious extravaganza!