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
.