Endogeneity
Said of a peril that occurs by decision of the insured or a third party, the opposite of the exogeneity pricing assumes.
The Seoul Convention of October 11, 1985 established the Multilateral Investment Guarantee Agency (MIGA). It lists expropriation and restrictions on currency conversion and transfer among the covered risks, and both share one feature: they are decided. Insurance assumes an exogenous peril, an event that depends on chance, neither on the insured nor on the insurer. Endogeneity is the reverse case, where the peril comes from a will that watches the insurance and adjusts its conduct. The sovereign knows a cover exists. It may be deterred if the guarantor can compromise its access to finance, or disinhibited if the victim is already indemnified. A peril endowed with a will does not price like a draw from nature, and that is what sets political risk apart from other lines.
Expropriation cover changes the host state's political calculus. It may deter the state or embolden it, the exact opposite of the exogeneity pricing assumes.
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