FUNDAMENTALS OF GAME DESIGN, SECOND EDITION
Health, Morale, and Fighting Efficiency
As with almost all other genres, units in war games fight at full efficiency until their health points are gone even though that's obviously unrealistic. Making wounded or damaged units fight at reduced efficiency introduces too powerful an effect of positive feedback in favor of the dominant side. Once a unit's efficiency begins to suffer, it's more likely to take further damage and so lose yet more efficiency, resulting in a quick demise. Reducing the fighting efficiency of damaged units also produces situations in which each side has harmed the other to the point that neither is able to fight effectively. The result is a long stalemate or a boring war of attrition, so in general, you should avoid this approach.
The same is true of most mechanisms that try to implement the effects of morale.
In such systems, morale is represented by a number that either increases or decreases an army's fighting effectiveness. If the number is positive, morale is high and the effectiveness goes up, perhaps by improving the weapons accuracy of all the units in the army. If the number is negative, morale is low and effectiveness is harmed. Morale goes up when the army is doing well (that is, losing fewer units relative to the enemy) and down if it is doing badly (losing a lot of units).
Again, this tight loop produces too much positive feedback. If one side starts to lose units, morale is lowered, fighting effectiveness goes down, and so that side keeps on losing. Furthermore, the enemy's morale has gone up at the same time, making the problem even worse. It's better to avoid morale altogether or to give it only a small role in determining fighting effectiveness. The leadership bonus, mentioned in the earlier section "Special Capabilities" is a better way to handle this; the value of the bonus is not based on how well the army is doing but on whether the leader is present, so there is no feedback loop.
In conflicts among small numbers of compound units, such as main battle tanks or capital ships, you may want to allow individual weapons or other systems aboard the unit to go out of commission as the unit takes damage. In a game about nineteenth-century naval warfare, for example, you can allow the guns aboard a 74-gun ship to be destroyed one by one, thus incrementally reducing the fighting capacity of the whole. The guns on a ship are analogous to the soldiers in an army, and like a soldier, each gun should fight at full strength until its hit points are gone.