Moderate regulations are optimal for HOs' program expense allocations: Findings from the combination of mechanism design and k-means clustering

<ns3:p>Background The context of this study is the ethical dilemma faced by humanitarian organizations’ (HOs’) executives. This study examines the ways in which regulators determine the degree to which program expense allocations should be limited or prohibited, whereas there is a lack of consensus in the literature. California has moderate regulations on the expense allocations of not-for-profit organizations’(NFPs’) programs. These regulations can influence those of other states and foreign countries. Methods Actual data from Japan, a country with regulations influenced by California, can provide clues on how to resolve disagreements. Through the adoption of a combination of mechanism design and k-means clustering, this study explains how regulators can optimize regulations on HOs’ program expense allocations. Results The k-means clustering results were calculated. There were 966 cases in the first cluster and 37 in the second cluster. The cluster center of the first cluster was 9,343 in JPY, and the cluster center of the second cluster was 160,581 in JPY. The required number of repeats was 12. 34% is the breakpoint ratio for sanctions to be imposed. Conclusions A way to achieve this goal is to intentionally limit the scale of imposed sanctions on expense allocations while maintaining some necessary sanctions to maintain mutual trust within the donation market. The identified research gap is lying around HOs. Transparency also has the dark side and stakeholders have competing interest, while transparency is usually necessary for NFPs to be accountable. This is the gap. While the findings here contradict the views of some rating organizations, intentional adoption of moderate regulations fulfills the research gap.</ns3:p>