Geography does not necessarily hinder this approach, look at how Iceland worked for over 300 years.
http://praxeology.net/libertariannation/a/f13l1.htmlIn outline, the system's main features were these: Legislative power was vested in the General Assembly (althingi); the legislators were Chieftains (godhar; singular, godhi) representing their Assemblymen (thingmenn; singular, thingmadhr). Every Icelander was attached to a Chieftain, either directly, by being an Assemblyman, or indirectly, by belonging to a household headed by an Assemblyman. A Chieftaincy (godhordh) was private property, which could be bought and sold. Representation was determined by choice rather than by place of residence; an Assemblyman could transfer his allegiance (and attendant fees) at will from one Chieftain to another without moving to a new district. Hence competition among Chieftains served to keep them in line.
The General Assembly passed laws, but had no executive authority; law enforcement was up to the individual, with the help of his friends, family, and Chieftain. Disputes were resolved either through private arbitration or through the court system administered by the General Assembly. Wrongdoers were required to pay financial restitution to their victims; those who refused were denied all legal protection in the future (and thus, e.g., could be killed with impunity). The claim to such compensation was itself a marketable commodity; a person too weak to enforce his claim could sell it to someone more powerful. This served to prevent the powerful from preying on the weak. Foreigners were scandalized by this "land without a king"; but Iceland's system appears to have kept the peace at least as well as those of its monarchical neighbors.
http://en.wikipedia.org/wiki/Icelandic_Commonwealthhistorian Birgir Solvason states that Icelandic society was "more peaceful and cooperative than its contemporaries"; in England and Norway, by contrast, "the period from about 800 to 1200 is a period of continuous struggle; high in both violence and killings."