I'd say that's definitely one aspect of a justice system, which is definitely one aspect of a government. But I don't think you even need "lives" to create a simulation of a government. Just agents and resources.
I would love to see more games...where the balancing comes from player experimentation with governing agreements.
100% agree. I've wondered how an MMO with permadeath + "reproduction" could work. Basically, every new avatar in the game has to be "made" by two existing avatars, and would be granted semi-random stats based on genetic contributions of the parents. This would mean spots in the game are limited, and you'd have to wait for existing players to "create" you, which would rate limit the number of people who can start playing your game, which limits the profits from running the game, which limits the number of studios willing to ever try it...
If Disney's lawyers think it's possible, it's probably possible. And if it's not, they'll figure out who to lobby to make sure it is.