On the other hand, a realm with a 20 noble/region ratio will have no advantage whatsoever from this, except at most a doubling of their revenues as they have full estate coverage. I think this is likely to result in large realms absorbing small ones.
This we don't know, if it were so no Lord would have the incentive to have more than a single knight (to cover 100% of the land).
I would suppose the smaller possible Estate would be the most efficient taxing gold and perhaps even food, and the larger comparatively more inefficient. That way a Lord would have to choose between having a maximum-sized Estate (50% or whatever number is chosen) and thus the largest possible individual income, or a smaller Estate but higher global income (gold gained by himself and his knights). He could end up even gaining with a smaller Estate by having enough Knights and taxing them properly.
Being more clear:
* Lord A has 1 knight, with a 50% Estates, same size as his (max), taxing him on 20% of what he earns. Say the region has a 200 gold potential at the current tax, but for having maxed Estates he is inefficient and they only get 75% of it (still better than 50% of no Estate coverage). His knight makes 75 and is taxed by 15 from his lord, keeping 60. The Lord makes 90, without deducting Ducal taxes.
* Lord B has 9 knights with 10% Estates, same as his (or insert any other amount to be the minimum if preferred), and they have the same 20% tax. Now they are making a total 200 gold instead of 150, only that the knights keep only 16 gold each, and the Lord makes 52.
* Lord C has the same situation as Lord A, but runs 75% taxes on his knight. He makes 125 gold and his knight 25.
* Lord D has the same situation as Lord B, but runs 75% taxes on his knights. He makes 155 and his knights make 15 each.
What I do not see is any kind of incentive for the Lord /not/ to have an Estate...