This paper studies social interaction models with both in-group and out-group effects. The in-group effect follows the standard setup in the literature, while the out-group effect is introduced by assuming the economic outcome also depends on its out-group average value. We present a network game with limited information of outside groups that rationalizes the econometric model. We show that both effects are identified under a set of mild regularity conditions. We propose to estimate the model using the two-stage least squares (2SLS) method and establish the asymptotic normality of the estimators. The finite sample performance of the estimators is investigated through Monte Carlo simulations.
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