Tontine

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In cryptography, a "tontine" is a secret sharing algorithm which allows n people to share secret data, such that any k of them can reconstruct it by combining their keys.

For the Australian pillow manufacturer, see Tontine Group.

A tontine is an investment vehicle which combines features of a group annuity, group life insurance, and a lottery.

The scheme is named after Neapolitan banker Lorenzo de Tonti, who is generally credited with inventing it in France in 1653. Some sources claim that similar schemes already existed in Italy, but there is no dispute that the popularity of the form was due to Tonti.

The basic concept is simple. Each investor pays a sum into the tontine. The funds are invested and each investor receives dividends. As each investor dies, his or her share is divided amongst the surviving investors. This process continues until only one investor survives. Originally, the last surviving subscriber received only the dividends: the capital reverted to the state upon his or her death and was used to fund public works projects, which often contained the word "tontine" in their name. In a later variation, the capital would devolve upon the last survivor, effectively dissolving the trust, and it is this version that has often been the plot device for mysteries and detective stories.

While once very popular in France, Britain, and the United States, tontines have been banned in Britain and the United States due to the incentive for investors to kill one another, thereby increasing their shares. Geneva, in Switzerland, was known for its active market in tontines in the 17th and 18th centuries. Nevertheless, there are underground organizations in the US that still use the tontine, and ownership of a business or property by joint tenancy with right of survivorship has much the same effect.

Tontines were the first government bonds issued anywhere in the world, and the British government first issued tontines in 1693 to fund a war against France. However, tontines soon caused problems for their issuing governments, as they would increasingly underestimate the longevity of the population. At first, tontine holders included men and women of all ages. However, by the mid-18th century, investors had caught on how to play the system, and it became increasingly common to buy tontines for young children, especially for girls around the age of 5 (since girls lived longer than boys, and by which age they were less at risk of infant mortality). This created the possibility to produce great returns for the holders, but it proved to be quite costly for the governments (not unlike modern day "pay-as-you-go" pension schemes). As a result, the tontine scheme was eventually abandoned, and as of the mid-1850, the tontines had been replaced by other investment vehicles such as "penny policies", a predecessor to the 20th century invention of the pension scheme.

[edit] Tontines in fiction

Tontines have often appeared in fiction, usually, but not always, as a motive for murder.

• In The Wrong Box, a novel by Robert Louis Stevenson, the object is to conceal the death of one of the last two investors.
• A more innocuous tontine was the subject of a M*A*S*H episode in which Colonel Potter, the last survivor of his World War I unit, inherits a bottle of brandy (the last of a cache the unit found) with which to toast the memory of his old comrades.
• In an episode of The Simpsons, Grampa and Mr. Burns enter into a tontine during World War II, involving a treasure of antique paintings stolen from a German castle. When the two of them become the only surviving members, they fight amongst themselves for the rights to the prize.
• A tontine is also used as a plot device in the novel Seventy Seven Clocks by Christopher Fowler, and in one of the Dr. Syn books.
• P.G. Wodehouse used a similar idea in his novel Something Fishy (titled The Butler Did It in the U.S.). In Wodehouse's version, the money did not go to the last survivor, but to the last son of the investors who remained unmarried.
• The plot of the Agatha Christie murder mystery 4.50 From Paddington, with Miss Marple, is based on a tontine will.
• The CD-ROM trivia game You Don't Know Jack Volume 2 used a tontine as one of their questions, asking what method is the best way to receive the maximum dividends (the answer is the 4th choice - Secretly kill all of your friends).
• The French writer, Alain-René Lesage wrote a play called La Tontine in 1709.
• The Wild Wild West, the 1967 TV series, season 2 episode 16 is titled: The Night of the Tottering Tontine. In a Ten Little Indians-style plot, James West and Artemus Gordon, assigned to protect a prominent professor, are trapped as a tontine collapses at a seaside mansion during a storm.
• The 2001 comedy film Tomcats features a similar arrangement, where several young men put money into a fund to be paid to the last unmarried man among them. The plot revolves around the efforts of one of the last two to get the other one married.

[edit] External links

• The Straight Dope: What's with tontines, the odd annuities in which you benefit when others die?
• The Wild Wild West: The Night of the Tottering Tontine.

Thomas B. Costain, very popular writer in the 1950s, wrote The Tontine Volume I and II about 1955. This novel gives a good overview of how a tontine works or worked in history.