Abstract: This paper studies social interaction models with both in-group and out-group effects. The ingroup 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.
https://www.tandfonline.com/doi/full/10.1080/13504851.2021.2000928
