Decentralized groups such as close knit residential neighborhoods and ethnically linked businesses often achieve high levels of cooperation while also engaging in exclusionary practices that we call parochialism. We investigate the contribution of within-group cultural affinity to the ability of parochial groups to cooperate in social dilemmas. Consistent with some recent experimental evidence, cooperation among members of culturally homogeneous groups may not come about because cultural affinity overrides individual self interest, leading members to behave altruistically towards others in their group. Rather, cultural affinity may support cooperation by altering the information structure of the interaction. We provide an economic analysis of parochial networks in which the losses incurred by not trading with outsiders are offset by an enhanced ability to enforce informal contracts by fostering trust among insiders. We show that since larger and more heterogeneous networks have lower quality information but greater trading opportunities, there is a range of degrees of parochialism for which parochial networks can coexist with an anonymous market offering unrestricted trading opportunities.