Involvement of nation-states in cyber-warfare has been gaining notoriety in recent years as evidenced by two developments. First, mainstream media has been reporting about cyber attacks of visible stature such as the Stuxnet incident in Iran, the hacking of the Ukrainian power grid or the much-publicized interference with the US presidential elections. Second, recognizing the powerful capabilities as well as the grave danger of weapon-grade cyber-attacks, major military organizations of nation-states and alliances are devising and implementing strategic plans for cyber-security and cyber-warfare. Given both its potential impact on national security and its high visibility, cyber-warfare has been a much researched topic in the (military) policy literature. Surprisingly, this is not the case from the techno-economic modeling standpoint. In this presentation, we develop a simple game-theoretical model allowing for a joint analysis of both cyber-war (defence vs. attack) decisions as well as the investment decisions of nation-states. Capturing the unique characteristics of cyber vulnerabilities, we show how the incentives can create a Prisoner's Dilemma situation where the equilibrium is cyber-war. We also show how competition over the same pool of zero-day vulnerabilities may further inflame investment in cyber-war. We discuss the implications our analysis and present directions for future research on this topic.