This paper studies the link between the quality of institutions and economic performance both on a macroeconomic level as well as on the issue of income distribution among different types of agents. For this reason, we introduce heterogeneous agents (capitalists and workers) in a real business cycle model with rent seeking competition. In this framework each type of agent allocates a part of their effort time in order to extract a fraction of a contestable prize. For each type of agent the contestable prize consists of the income of the other type of agents. The degree of extraction depends on the quality of institutions. When studying the behaviour of the model in terms of wedges and propagation mechanism, long-run behaviour, second moment properties and impulse response functions, the introduction of rent seeking in a heterogeneous agents model reveals both qualitative and quantitative differences on the distributional level.