I've been a major supporter of a complete overhaul on the mechanic of bounties, and actually creating a profession based on the concept of bounty hunting.
The issue is always that it will lead to griefing, undescribable ammounts of griefing.
You could choose restrictions to the bounty system, such as having a -2.0 or less sec rating, only aplicable when in ships not pods, etc etc.
However it always comes down to this: the normal concept we have of bounty hunters is related to the fact i can capture or kill a person and its done, there is no way to opt out.
But capsuleers survive death by clones, we can jumpclone around, and as was said in this thread, the only way to hurt capsuleers is to make a hole in their wallets.
I think bounty hunting should be an extension of the contract system, you put up an offer valid for a number of days, someone can claim said offer and go kill one of the ships of the offender, you can also claim it on behalf of the corp, so its the corp that receives the isk once completed.
The point is, there can be multiple bounties for the same guy, and each ship killed will count towards it. However i would say there should be some small additive factor, depending on the size/type of the ship, no bonus to frigs, bonus to cruiser, major bonus to kill the target if he/she was flying a machariel.
Said additional isk is a faucet in eve, it will come from the bounty system, so you can have a net gain out of searching and killing people in the appropiate ships.
But the most important detail should be this: if no one claimed the bounty, the contract is void and the isk is returned to the person who published the offer, so it does not become this huge pool of tied isk that people like to drag around so that one day they can be killed by an alt and cash in the whole thing without any effort.
People who would like to have bounties on their head will neeed to be active, people who like to hunt down targets will regularly claim contracts, and seek to engage them in the target's most expensive ships.
The point in which im not sure the design sustains itself is deciding restrictions, why would i limit this to just outlaws? why not everyone? why not put a bounty on Itsvaan? probably the target i want inflict damage to does not have a bad sec rating, and lives in high-sec. Is it too much griefing?. Should the hunted be informed by an evemail first?. The concept of a contracted bounty is very appealing, and does resolve a number of issues in my view (as in who can claim the contract as completed for example), but its the ammount of griefing that can be done with it that make me think twice before actually going forward with it.