Just an idea

[Suicide Junkie]

quote:

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I think it is impossible to have a ship by ship morale rating unless as I read in another thread, a retreat option is added to the tactical battle. The reason being is that if you lose, the ship is destroyed. Very few ships would actually suffer from bad morale. You are either alive or dead. It is probably impossible to even have a fleet morale rating. Well, I mean you can have one, but it would be worthless...never being negative.

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That's why the decrease in morale has to be something like: -5% for ships in the same system as a lost battle, and -2% for ships in the entire empire.
Losing individual ships could say, reduce morale in the sector by 1%. If the ship was Elite, its loss could reduce morale 2% in the sector, and 1% system wide, and if the ship was legendary, morale would drop 3% in the sector, 2% system wide, and 1% empire wide.

That way, fighting a grinding war with heavy losses on both sides would destroy everybody's morale, and your legendary Flagship would have some strategic importance.
For example, destroying two Legendary ships while they are being retrofitted (even if you lose the battle) will still get you a big morale advantage, which you could use to win an evenly matched fleet action.
Racial happiness should probably affect morale, just like it works on planetary happiness.