The problem is that unless you set a huge bounty, it probably won't be enough. Close warfare is usually too destructive for the pay-off, IMO.
Let's suppose that I, with Academy, coal aplenty, vast quantities of EUR and enough ICBMs to stage a minor nuclear holocaust, see a bounty up on a close neighbour - a neighbour nowhere near my power, but kitted out enough to make war on weaker players. I'm going to suppose for the sake of argument that my neighbour has six cannons, and my communist spies inform me of 3 URO and 3 Bauxite waiting to be used as munitions, plus coal to fire them. I have perhaps a dozen cannons all loaded with EUR and could nuke this neighbour back into the stone age. But I won't unless the bounty's substantial. Why?
A typical exchange will see me lose at least four to five buildings from my opponent's firepower. Best case, they're all warehouses - but I still need 4 ALU and 4 coal to rebuild. Against a much weaker opponent, I'll be lucky to get better than a bauxite a turn for eight turns from tithes - it's almost certain I won't even repay the cost of four warehouses. But if other things get hit, the consequences could be far worse. If the academy or a refinery or the windmill take a shot, I'm out rather more resources - and that's not even considering advanced buildings or the horror of a reactor shot. Realistically, I'm probably going to be out a minimum of six to nine refined resources plus six to nine coal plus whatever costs I incur for not having some of my useful buildings present in the next few production cycles, against whatever poor tithe I'm likely to recover. Now, if the bounty's 10 ALU or something, I might hesitate and consider it - but even 10 ALU wouldn't make me take up arms against someone with a reasonable EUR stock.
Close warfare only pays if you go about it in an extremely opportunistic fashion and pick on (preferably idle) people with almost no coal.
Now, warfare at a distance is more forgiving because not so many mid-range players have ICBMs, and while you're losing a certain 2 STEEL, 2 EUR and coal, at least you know that that's all you'll lose (if they can't return fire). A bounty would possibly make an ICBM worthwhile. Again, however, if they have an ICBM or two themselves I'm not going to be silly enough to go to war with them.
This also makes even a diplomatic agreement to protect a weaker country in exchange for trade items fraught with peril; honouring that obligation is likely to prove tremendously costly.
That said I wouldn't mind seeing more sophisticated diplomatic options - it would add another dimension to the game. At the moment, it seems to me that gameplay is mostly about building buildings and the trading needed to accomplish that, and beyond that it has the following flaws:
1) Warfare is too destructive to be a reasonable course against someone capable of mounting even a mediocre defence, as discussed above. 2) Gaining tech levels in most cases hurts you more than it helps you. The weakening of the Black Market has had much more of a negative impact on me as I've progressed up the tech levels than the extra warehouses or most of the other goodies have had a positive impact. But when I have most of the buildings I need, I've little left to accomplish but to gain tech levels (or hull upgrades, but there's something less than exciting about perma-warehouses) - so I research away anyway. 3) The ultimate aspiration is to build a Doomsday Device. Could the game be any more nihilistic? The Doomsday Device, again, hurts you far more than it helps you, and its only attraction is that it also destroys the achievements of all other players, hopefully including anyone who's actually been able to eke some fun out of this whole barren cycle. Go go Schadenfreude!
Slightly more sophisticated diplomacy could at least reduce some of the isolation and provide a little ray of positivity in the shape of alliances and means to help weaker players. And if larger leagues began to form, I'm sure that it would be possible to introduce issues of conflict serious enough that people would be willing to fight over them (especially if they knew their allies would take up some of the slack when it came to getting them back on their feet afterwards).
It might be nice to add to the bounty of a particular player, though. Then stronger folks could attack someone who's been bothering you, if they really wanted.
Although I do have to admit that it really isn't worth it to do local warfare with anyone who has coal and URO/EUR. Even those without an Academy can do significant damage with just a couple URO, and the only time it might be useful is if you attack an EUR miner before he has his Academy (and hopefully when he has no URO, but still), as then you'd tithe URO and EUR (the best you could tithe) --- but, of course, the chances of snagging someone like that are very low, as they're the ones who'd have URO and EUR hanging around...
The best people to vassalize are those with DDRLs or ICBMs you want to tithe away... but the chances of tithing away DDRLs is low, unless they have an awful lot, so you'd be expending X buildings worth of materials for a small chance at a DDRL...
I mean, even attacking people on the bounty list isn't generally worth it, as I seem to just get 1 Food from it, and lose two or three buildings (and 2 ALU:1 Food is rather average fare, just hope I don't lose something like a Solar Panel)...
For the record, sitting on a Uranium tile and enslaving your neighbors while Fascist is highly viable. I don't like to do it for too long though, because I figure people will get depressed and quit the game.
The problem here is, I've tempered tithing so that you can't utterly demoralize your vassals by taking all their stuff. And wars tend to destroy a lot of your buildings (scrap notwithstanding). So, right, war is frequently not worth it.
In terms of bounties though, if you were a brand newbie who managed to fight inland a square or two, and get some Steel or EUR so you were battle-ready, I'm pretty sure bounties might start looking good.
I'm not going to make any large or sudden changes to warfare, but I will keep your concerns in mind and ease the game in a more battle-oriented direction, long term.