Is it possible to install a ROM on /recovery instead of /system? I am not going to do it, but I just wonder whether it is possible to install a ROM to /recovery and TWRP to /system, so one would normally boot into TWRP and only boot into Android when one performs the key combination for recovery mode. Is this possible somehow and would it have any negative side effects?
TWRP normally installs to recovery; kernel for the OS normally installs to boot; /system is another thing entirely where the majority of the files of the OS goes.

Doesn't change the conclusion for what you want to achieve though - yes, you can swap boot and recovery so it boots to recovery by default and boots to the OS when choosing "reboot to recovery" or using the key combo. At heart the two booting processes are both simply booting a kernel image. Note that this doesn't touch /system.