Why is that better than forcing the fee directly, and ensuring that the capacity is well above the demand? (I ca think of several reasons why it is much worse.)
It's not. In fact, Nicolas Houy shows in this paper that a block size limit is economically equivalent to a minimum fee:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2400519One criticism of the minimum-fee approach is that it would be possible (albeit awkward) for miners to refund fees out-of-band.
I think this paper was quite helpful, however, one thing it did not consider is the fact that miners may have their blocks orphaned, thereby forfeiting the block reward. This orphaning risk serves as a production cost for our new economic commodity called block space. In
this paper (which I know you've seen), I build from Nicolas Houy's work to show that if orphaning is included, that a healthy fee market would exist without a block size limit.
I bought into Bitcoin because I thought I WAS buying block space by buying bitcoin. If I have to include fees, and am limited in my ability to use the block chain for title transfer and recording, timestamps and microtransactions, then it is analogous to buying raw land only to discover I am not allowed to build on or develop the land and also have to pay property taxes. Have I been duped? Are the haters right when they say this is a scam? Scarcity means nothing if their is no utility value also. There are only 21 million bitcoins, but a potentially infinite number of cryptocoins. What makes BTC better than the rest? Network effects did not save Myspace.