Generating contour lines from LIDAR data - resolution question

[SteveGoates1]

Hello,
I have a LIDAR dataset with point spacing of 3.5 feet.
What is realistically the highest resolution of elevation contour that i can generate with this data?
I generated 1 foot contours, but am i interpolating too much by going finer than the source data?
Should i stick to a minimum of 3.5 feet?
Thank you!

[MarkBoucher]

I recall from my past work, that the surveyors doing aerial stereographic topography had specific limits on the precision (minimum vertical interval of contours) they could create in topographic maps that were paper/mylar and later CAD. These were used by Civil Engineers doing land development. If the engineer needed better accuracy, s/he would send a survey crew out to shots with a rod. The question might be better posed to surveyors on http://forums.arcgis.com/forums/105-Survey-Analyst (though I'm not sure you would be asking about that extention).

You could also look for articles like this one that I found: http://www.csc.noaa.gov/digitalcoast/geozone/lidar-accuracy-versus-resolution

[SteveLynch]

The question to ask is not about the horizontal spacing but what is measured in the z direction.

You may have 2 points that are 3.5 ft apart but the elevation difference is 2 ft. Or you may be contouring temperature values, what do you make the interval?

-Steve

[SteveGoates1]

The question to ask is not about the horizontal spacing but what is measured in the z direction.

You may have 2 points that are 3.5 ft apart but the elevation difference is 2 ft. Or you may be contouring temperature values, what do you make the interval?

-Steve

Steve, i see that i was being ambiguous there... specifically i am looking to generate elevation contours. 
Points vary from inches up to a foot apart elevationally - so i'm thinking that i could do 1 foot contours?

Thanks for the reply.