drop from hazard with red stakes

Question
A player tees off and hits the ball to the right side and towards a part of the hole that is marked with red stakes for a hazard. The other area of the hole is not marked since it is not a hazard.
He never finds his ball in the hazard and decides to declare the ball lost. HE argues he can drop were the ball last went into the hazard but he never found his ball so he was never sure it was in the hazard anyway. The ball could have been lost outside the hazard area. I told him he had to re-tee the ball since he never found his ball. is this right? does a player need to identify his ball in the hazard?

Answer
Hello marco:
Thanks for asking this question.  
In this case, he needs to re-tee the ball since he declared lost ball.  However, if it is very certain that the ball went into Red hazardous area by both of you,  then he can drop the ball not closer to the hole with two club length.  Please see the rule 27-1 27-2.

http://golf.about.com/cs/rulesofgolf/a/rule27.htm

Thanks.