I don't think that there IS a theoretical limit. The lag problem seems to be a bit of a furphy to me - the speed with which an increase in pressure (as the turbo speeds up) through the entire intake system is going to be the speed of sound - so the only effect will be the need to fill a larger volume, which I suspect will be marginal.
On the positive side, the cooler the better no matter how you look at it, and the larger the intercooler the smaller the flow resistance will be. In both cases it will be a case of diminishing returns, but I think that the practical limit (what will fit) will be reached long before the improvement of going bigger is negligible. So what they told you is correct. I doubt that there is any sort of formula, and if there is it will be a rule of thumb, and probably directed at the smallest one worth fitting rather than the largest.
John



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), if you fitted an IC from say, a 16 litre V8 diesel truck engine to a 3.9 litre engine, this would be way too big and would have to have a negative effect on performance. I'm guessing this IC would be something like 9000 cu/in (they are huge)

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