Well, that gave me a great deal to think about. [Apologies for not responding much, but Livejournal was being quite balky. -bb]
I don't know that it'll be a whole city-state quickly. (If all the traff-folk from the branch decide they want to live there, it might have enough people for that! But that is unlikely, especially if we are generous with monsters.) I expect to come up with some sort of semi-autonomous citylet sort of thing. We might be able to make our own laws; that happens sometimes.
And, as a lot of the point of the city is to have laws that we like ... how shall we make laws, in general?
A typical city has a legeriat, a dozen or so people representing the major factions and moieties in the city, who construct laws. Which, in some cities, simply become laws; in other cities, they must be promulgated by the duke (or whatever); in other cities, they must be voted on popularly, or approved by a court, or various other things.
Or, some other cities have, say, the duke proclaim all laws. Or a pure democratic approach, in which the citizens as a whole vote on all laws. Or a prophetic mirror that reveals wise laws. Or, I suppose, nearly anything else imaginable.
In any case, I want two things from a legal system.
First: I want to have some laws that please me. The city must be traff-friendly. In essence, it is Castle Wrong (or Strayway) in city form.
Second: I want to have just, fair, wise, and good laws. Not that I could give a good definition of any of those adjectives, or even necessarily recognize them if I were confronted by them.
So, how would you suggest designing a lawmaking apparatus for a young and probably tiny World Tree city?