I've tried this on a small scale. I had students make up rules and set punishments for when watching a film. I did it with a few different classes, and they came up with very good rules and very fair punishments. I found it worked really well. So, I say go for it - but be prepared. Know where you want it to go, and what you're prepared to do. You HAVE to follow through or the rules are useless anyway.
Also, be ready with suggestions and prompts. Like:
T: So, what happens if you talk?
St: Tell us to stop.
T: and if you keep talking?
St: Umm, stand at the back of the room.
T: Ok, and if you STILL talk?
St: .... Ummmm?
T: How about writing lines?
St: Yes, ok.
T: How many?
.....
And so on.
Best of luck :)