--install-dir vs --only_install_dir

$ gem -v
2.7.6.3

$ ruby -v
ruby 2.5.9p229 (2021-04-05 revision 67939) [x86_64-linux]

$ gem env
RubyGems Environment:
  - RUBYGEMS VERSION: 2.7.6.3
  - RUBY VERSION: 2.5.9 (2021-04-05 patchlevel 229) [x86_64-linux]
  - INSTALLATION DIRECTORY: /usr/share/gems
  - USER INSTALLATION DIRECTORY: /builddir/.gem/ruby
  - RUBY EXECUTABLE: /usr/bin/ruby
  - EXECUTABLE DIRECTORY: /usr/bin
  - SPEC CACHE DIRECTORY: /builddir/.gem/specs
  - SYSTEM CONFIGURATION DIRECTORY: /etc
  - RUBYGEMS PLATFORMS:
    - ruby
    - x86_64-linux
  - GEM PATHS:
     - /usr/share/gems
     - /builddir/.gem/ruby
     - /usr/local/share/gems
  - GEM CONFIGURATION:
     - :update_sources => true
     - :verbose => true
     - :backtrace => false
     - :bulk_threshold => 1000
  - REMOTE SOURCES:
     - https://rubygems.org/
  - SHELL PATH:
     - /usr/bin
     - /bin
     - /usr/sbin
     - /sbin
     - /usr/local/sbin

$ gem install nokogiri:1.6.7.1 rake:0.9.6 rack:1.6.13 i18n:0.9.0 activesupport:4.2.7 --no-document --conservative --install-dir=~/g
Fetching: mini_portile2-2.0.0.gem (100%)
Successfully installed mini_portile2-2.0.0
Fetching: nokogiri-1.6.7.1.gem (100%)
Building native extensions. This could take a while...
Successfully installed nokogiri-1.6.7.1
Fetching: rake-0.9.6.gem (100%)
Successfully installed rake-0.9.6
Fetching: rack-1.6.13.gem (100%)
Successfully installed rack-1.6.13
Fetching: concurrent-ruby-1.1.10.gem (100%)
Successfully installed concurrent-ruby-1.1.10
Fetching: i18n-0.9.0.gem (100%)
Successfully installed i18n-0.9.0
Fetching: thread_safe-0.3.6.gem (100%)
Successfully installed thread_safe-0.3.6
Fetching: minitest-5.15.0.gem (100%)
Successfully installed minitest-5.15.0
Fetching: tzinfo-1.2.9.gem (100%)
Successfully installed tzinfo-1.2.9
Fetching: json-1.8.6.gem (100%)
Building native extensions. This could take a while...
Successfully installed json-1.8.6
Fetching: i18n-0.9.5.gem (100%)
Successfully installed i18n-0.9.5
Fetching: activesupport-4.2.7.gem (100%)
Successfully installed activesupport-4.2.7
12 gems installed

In the example above, the i18n is installed twice in different versions. This is due to --install-dir option implying also --only_install_dir in a non-transparent way. I don't think this is correct behavior. The --install-dir documentation only says:

https://github.com/rubygems/rubygems/blob/765996dde91e3b8e8108d5e6d9ff155425888ecb/lib/rubygems/installer.rb#L168

If the installation directory is still the same, its content should be reflected for resolution IMO. However the implementation derives the the --only_install_dir from the presence of --install-dir:

https://github.com/rubygems/rubygems/blob/765996dde91e3b8e8108d5e6d9ff155425888ecb/lib/rubygems/dependency_installer.rb#L68

Later submitting this value to the resolver with completely different meaning:

https://github.com/rubygems/rubygems/blob/765996dde91e3b8e8108d5e6d9ff155425888ecb/lib/rubygems/dependency_installer.rb#L288

Sorry for testing with outdated version of Ruby/RubyGems, but checking the code, it seems the behavior has not changed.

Start with the referenced logic in lib/rubygems/installer.rb and lib/rubygems/dependency_installer.rb, especially the cited handling of --install-dir and --only_install_dir. Reproduce the gem install command from the report and inspect how the resolver treats the two options. Done means the installation-directory contents are reflected in dependency resolution without the options being conflated.