Apology in advance, if this is in, or has been suggested. I couldn't find anything about it. From what I've seen, it seems like this could be put into the game, from looking at some of the NPC perks to enhance a city (Administrator, Royal). It's an idea that's used in many empire-building games, and I thought about it when reading about city spam.
Realm-wide efficiency bonus/penalty
Many empire building games have some mechanic for corruption or inefficiency, so that as the empire becomes larger, it becomes harder to govern. While the ruler has tight control over the capitol, graft, laziness and inefficiency creep in as you get farther away. These games use a variety of means to combat the efficiency penalty, be it buildings or technology.
The basic idea of Kingdoms vs Empire would be a good starting point - Kingdoms are smaller, and have a heavier efficiency penalty as they grow larger, while Empires should get more efficient as they grow, although there would be a loss as it spreads out. Without the right structures, research, or spells, a few, well-built cities would be more efficient than many cities.
Penalties
Penalties apply to everything earned in the city - gildars, research points, construction materials, food, iron, prestige, magic shards, construction times, troop training time.
Kingdom: Overall penalty for each city that grows as new cities are founded; a smaller kingdom is more efficient.
Empires: Individual penalty for each city, based on it's distance from the capitol.
Spells - certain spells could reduce the efficiency of the target city or realm, either in one category or all.
Diplomacy (spies) - certain actions could reduce the efficiency of the target city or realm, either in one category or all.
Bonuses
Bonuses would first reduce the efficiency penalty, and only then increase the actual production
Realm-wide
Palace - gives an administrative bonus for each city in the realm.
Sovereign perks - applies to every city, based on the perk. Royalty affects prestige, Farmer affects food production, etc.
Spells - certain spells could increase the efficiency of your realm, either in one category or all.
Technology - certain technologies could increase the efficiency of your realm, either in one category or all.
(Tech) Caravans - bonus for all gildar, food, iron, shard & material production due to the efficient way of moving goods, stimulating commerce.
City
Tax Office - gildars
Town Hall - prestige
Warehouse - construction time
Granary - food production (allow in all cities, even if no farm/apiary/orchard?)
Armory - troop training time
Assayers office - iron production
? - materials production (lumber)
? - shard production
Elder Council - research
Spells - certain spells could increase the efficiency of a city, either in one category or all.
Technology - certain technologies could increase the efficiency of a city, either in one category or all.
* Spells - (no clue how spells will work, but I'm looking at this from a Master of Magic basis) Spells could be cast on cities or realms to give a variety of bonuses, either lasting for a set number of turns, or until canceled, for an up-front casting cost, or using shards in some manner.
