I prefer a simple bounty.
1. Town council/founder can post bounty on player, which will show up on ranking like posted earlier. Also, allow ANY victim of dueler to post a bounty, BUT they have to do so within say 24-48 hours after being killed, this will require additional coding but should be easily checked as we already store those information in the database.
2. Whichever player kills the bounty player gets to collect 1/3 of the prize as posted in 1st post. Collect full payment can be subject to abuse so reward needs to be a fraction of the posted amount.
3. Consider adding one extra day of unable to duel for duelers as a penalty.
That's it, no need to get more elaborate for now because
1. Duelers require the ability to duel, being killed = 48 hours you cannot duel, force duelers to work for a living.
2. Dueling for cash right now is not a guarantee, you may get lucky, you may get unlucky, by posting bounty, the prospective bounty hunter is guaranteed to "collect" cash if the bounty hunter wins.
I understand some people might be frustrated with constantly losing hard earned $$$ to duelers but putting duelers in jail, etc. penalize duelers too much in my opinion. For duelers that depends on "efficient" dueling other players for cash and exp (as their stats are all in dueling related skills), not able to duel can hurt.
Let the market decide which ones bounty hunters are going to go after ,risk versus reward. If a dueler kill too many, terrorize too many towns, victims can post enough bounty to entice some bounty hunters to go out of their way to collect $$$.