Saurabh Koranglekar
The reason is that wire has resistance, and when initially connected, the wire is at room temperature, thus has some given low resistance per length. When current flows, the wire heats up from the current. This increases the wire temperature, and so the wire resistance increases, decreasing current flow. This continues until an equilibrium is reached where the heat generated is dissipated at a steady rate into surrounding air. As you might expect, if the wire is covered with insulation, the wire will be at a higher temperature when equilibrium is reached than if the wire was bare. This actually figures in to building electrical codes- for example, the inspector won’t allow romex (double insulation clad wire) be installed in metal conduit because of the heat rise; only separate insulated wires are allowed in metallic conduit.
