Fee Recovery Fallacy

There is a theory that miners gain financial advantage over other miners by mining their own transactions and "recovering" their own fees.

The theory ignores the opportunity cost of mining block space without collecting payment for it. Payment of a fee to one's self is a financial non-event. Failure to collect a fee is a real cost in the amount forgone, as the cost of mining that portion of the block is uncompensated.

The result is a lower return on capital relative to miners who sell all block space. Given the zero sum nature of mining this disparity allows the more rational miners to increase their hash power. In other words the consequence is the opposite of that proposed, and the theory is therefore invalid.

There is a related theory that fee estimation tools may be fooled into recommending higher fees than are required. As shown in Side Fee Fallacy this implies a relationship between historical and future fee rates that does not exist, and that all fees are visible on chain, which is not the case. Finally, any general fee increase encouraged by such a strategy affects all miners equally. As mining is zero sum there is no benefit to any miner from a general fee level increase. In fact all miners suffer from the reduced utility of the money (which has been financed in full by the uncompensated miner). This theory is therefore also invalid.